Answered step by step
Verified Expert Solution
Question
1 Approved Answer
We are evaluating a project that costs $859,000, has a life of 15 years, and has no salvage value. Assume that depreciation is straight-line to
We are evaluating a project that costs $859,000, has a life of 15 years, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 129,000 units per year. Price per unit is $42, variable cost per unit is $23, and fixed costs are $876,180 per year. The tax rate is 25 percent, and we require a return of 18 percent on this project. 1a. Calculate the accounting break-even point. 1b. What is the degree of operating leverage at the accounting break-even point? 2a. Calculate the base-case cash flow. 2b. Calculate the NPV 2c. What is the sensitivity of NPV to changes in the quantity sold? 2d. What your answer tells you about a 500-unit decrease in the quantity sold? 3a. What is the sensitivity of OCF to changes in the variable cost figure? 3b. How much will OCF change if variable costs decrease by $1
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started