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We are evaluating a project that costs $1,890,000, has a 6 -year IIfe, and has no salvage value. Assume that depreciation Is straight-IIne to zero
We are evaluating a project that costs $1,890,000, has a 6 -year IIfe, and has no salvage value. Assume that depreciation Is straight-IIne to zero over the life of the project. Sales are projected at 89,400 units per year. Price per unit is $38.37, varlable cost per unit is $23.55, and fixed costs are $836,000 per year. The tax rate is 22 percent, and we require a return of 9 percent on this project. a. Calculate the base-case operating cash flow and NPV. Note: Do not round Intermedlate calculatlons and round your answers to 2 decimal places, e.g., 3216. b. What is the sensitivity of NPV to changes in the sales figure? Note: Do not round Intermedlate calculatlons and round your answer to 3 declmal places, e.g., 32161. c. If there is a 500-unit decrease in projected sales, how much would the NPV change? Note: A negatlve answer should be Indlcated by a minus sign. Do not round Intermedlate calculations and round your answer to 2 decimal places, e.g., 3216. d. What is the sensitivity of OCF to changes in the varlable cost figure? Note: A negatlve answer should be Indicated by a minus sign. Do not round Intermedlate calculatlons and round your answer to the nearest whole number, e.g., 32 e. If there is a $1 decrease in estlmated varlable costs, how much would the OCF change? Note: Do not round Intermedlate calculations and round your answer to the nearest whole number, e.g., 32
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