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 $850,000 per year. The tax rate is 35 percent, and we require a 15 percent return on this project.
| Requirement 1: |
| Calculate the accounting break-even point. (Round your answer to the nearest whole number.) |
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| Requirement 2: |
| (a) | Calculate the base-case cash flow and NPV. (Do not include the dollar signs ($). Round your answers to 2 decimal places. (e.g., 32.16)) |
| (b) | What is the sensitivity of NPV to changes in the sales figure? (Do not include the dollar sign ($). Round your answer to 3 decimal places. (e.g., 32.161)) |
| (c) | Calculate the change in NPV if there is a 500-unit decrease in projected sales.(Do not include the dollar sign ($). Negative amount should be indicated by minus sign. Round your answer to 2 decimal places. (e.g., 32.16)) |
| (a) | What is the sensitivity of OCF to changes in the variable cost figure? (Do not include the dollar sign ($). Negative amount should be indicated by minus sign.) |
| (b) | Calculate the change in OCF if there is a $1 decrease in estimated variable costs. (Do not include the dollar sign ($).) |
