Question
We are evaluating a project that costs $832,000, 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 $832,000, 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 40,000 units per year. Price per unit is $40, variable cost per unit is $15, and fixed costs are $700,000 per year. The tax rate is 35 percent, and we require a return of 18 percent on this project.
a.Calculate the accounting break-even point.(Do not round intermediate calculations and round your final answer to nearest whole number (e.g., 32).)
Break-even pointunits=
b-1Calculate the base-case cash flow and NPV.(Do not round intermediate calculations and round your NPV answer to 2 decimal places (e.g., 32.16).)
Cash flow$=
NPV$=
b-2What is the sensitivity of NPV to changes in the sales figure?(Do not round intermediate calculations and round your final answer to 3 decimal places (e.g., 32.161).)
NPV/Q$=
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 decrease or increase=
by $=
c.What is the sensitivity of OCF to changes in the variable cost figure?(Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your final answer to nearest whole number (e.g., 32).)
OCF/VC$=
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