Question
We are evaluating a project that costs $1,830,000, has a 6-year life, and has no salvage value. Assume that depreciation is straight-line to zero over
We are evaluating a project that costs $1,830,000, has a 6-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 88,600 units per year. Price per unit is $38.25, variable cost per unit is $23.45, and fixed costs are $830,000 per year. The tax rate is 25 percent, and we require a return of 9 percent on this project.
Calculate the base-case operating cash flow and NPV.
Note: Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.
What is the sensitivity of NPV to changes in the sales figure?
Note: Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.
If there is a 400-unit decrease in projected sales, how much would the NPV change?
Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.
What is the sensitivity of OCF to changes in the variable cost figure?
Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.
If there is a $1 decrease in estimated variable costs, how much would the OCF change?
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