Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

We are evaluating a project that costs $841,474, has an eight-year life, and has no salvage value. Assume that depreciation is straight-line to zero over

image text in transcribed

We are evaluating a project that costs $841,474, 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 63,337 units per year. Price per unit is $36, variable cost per unit is $17, and fixed costs are $416,566 per year. The tax rate is 35%, and we require a return of 22% on this project. In dollar terms, what is the sensitivity of NPV to changes in the units sold projection? The sensitivity is just the first order condition in the calculus. For example, in our question, the sensitivity of NPV changes associate change in the units sold as an example. The sensitivity means the NPV changes associate 1% change in units sold. Thus, the change starting points and ending points will not affect the question. (Round answer to 2 decimal places. Do not round intermediate calculations)

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

Fundamentals of Investments Valuation and Management

Authors: Bradford D. Jordan, Thomas W. Miller

5th edition

978-007728329, 9780073382357, 0077283295, 73382353, 978-0077283292

More Books

Students also viewed these Finance questions