Question
We are evaluating a project that costs $756,000, has a six-year life, and has no salvage value. Assume that depreciation is straight-line to zero over
We are evaluating a project that costs $756,000, has a six-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 67,000 units per year. Price per unit is $60, variable cost per unit is $25, and fixed costs are $693,000 per year. The tax rate is 35 percent, and we require a return of 20 percent on this project.
a.Calculate the accounting break-even point.(Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)
Break-even pointunits
b-1Calculate the base-case cash flow and NPV.(Do not round intermediate calculations and round your NPV answer to 2 decimal places, e.g., 32.16.)
Cash flow$NPV$
b-2What is the sensitivity of NPV to changes in the sales figure?(Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.)
NPV/Q$
b-3Calculate the change in NPV if sales were to drop by 500 units.(Enter your answer as a positive number. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
NPV would
(Click to select)
decrease
increase
by $
c.What is the sensitivity of OCF to changes in the variable cost figure?(A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)
OCF/VC$
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