Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

We are evaluating a project that costs $908,000, has an 9-year life, and has no salvage value. Assume that depreciation is straight-line to zero over

image text in transcribed
image text in transcribed
We are evaluating a project that costs $908,000, has an 9-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 103,000 units per year. Price per unit is $41, variable cost per unit is $20, and fixed costs are $913,448 per year. The tax rate is 32 percent, and we require a 14 percent return on this project. Requirement 1: Break-Even (a)Calculate the accounting break-even point. (Do not round your intermediate calculations.) (Click to select) (b)What is the degree of operating leverage at the accounting break-even point? (Do not round your intermediate calculations.) (Click to select) Requirement 2: Base-Case & NPV Sensitivity (a)Calculate the base-case operating cash flow. (Do not round your intermediate calculations.) (Click to select) (b)Calculate the base-case NPV. (Do not round your intermediate calculations.) (Click to select) (c)What is the sensitivity/elasticity of NPV to changes in the sales figure? Recall from your economics class that an elasticity measures a percentage change in one variable due to a percentage change in another. So simply increase sales quantity by 1 percent, calculate the new NPV, and then calculate the percentage change in the NPV. (Do not round your intermediate calculations.) (Click to select) ces Requirement 3: Sensitivity of OCF (a)in addition to NPV, we can calculate the sensitivity of other things, such as OCF. What is the sensitivity of base-case OCF to changes in the variable cost? Estimate the sensitivity by increasing variable costs by 10%. (Do not round your intermediate calculations.) (Click to select) (b)Based on this sensitivity, estimate the change in OCF (in dollars) given a 15% decrease in the variable costs? (Do not round your intermediate calculations.) (Click to select)

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

Accounting An Introduction

Authors: Eddie McLaney, Peter Atrill

2nd Edition

0273655507, 978-0273655503

More Books

Students also viewed these Accounting questions