Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Research In Finance

Authors: John W. Kensinger

1st Edition

0857245414, 978-0857245410

More Books

Students also viewed these Finance questions

Question

What is redundancy and how can it improve product design?

Answered: 1 week ago