Question
We are evaluating a project that costs $500,000, has an eight-year life, and has no salvage value. Assume that depreciation is straight-line to zero over
We are evaluating a project that costs $500,000, has an eight-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 50,000 units per year. Price per unit is $40, variable cost per unit is $25, and fixed costs are $600,000 per year. The tax rate is 35 percent, and we require a return of 12 percent on this project. Calculate the the accounting break-even point. Calculate the base-case cash flow and NPV. Calculate the sensitivity of NPV to changes in the sales figure. Calculate the sensitivity of OCF to changes in the variable cost figure.
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