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We are evaluating a project that costs $800,000, 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 $800,000, 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 95,000 units per year. Price per unit is $37, variable cost per unit is $22, and the fixed costs are $880,000 per year. The tax rate is 35%, and we require a return of 15% on this project. a. Calculate the accounting break-even point. b. Calculate the base case cash flow and NPV. What is the sensitivity of NPV to change in the sales figure? What your answer tells you about a 500 unit decrease in projected sales. c. What is the sensitivity of OCF to changes in the variable cost figure? Explain what your answer tells you about a 1$ decrease in estimated variable costs
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