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We are evaluating a project that costs $724,000, 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 $724,000, 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 75,000 units per year. Price per unit is $39, variable cost per unit is $23, and fixed costs are $850,000 per year. The tax rate is 35 percent, and we require a 15 percent return on this project. 1.) What is the accounting break-even point? 2.) Calculate the base-case cash flow and NPV 3.) What is the sensitivity of NPV to changes in the sales figure? 4.) Calculate the change in NPV if there is a 500-unit decrease in projected sales. 5.) What is the sensitivity of OCF to changes in the variable cost figure? 6.) Calculate the change in OCF if there is a $1 decrease in estimated variable costs
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