Question
We are evaluating a project that costs $924,000, has a four-year life, and has no salvage value. Assume that depreciation is straight-line to zero over
We are evaluating a project that costs $924,000, has a four-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 87,600 units per year. Price per unit is $34.55, variable cost per unit is $20.80, and fixed costs are $756,000 per year. The tax rate is 35 percent, and we require a return of 13 percent on this project. |
Requirement 1: |
Calculate the base-case cash flow and NPV. (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).) |
Base-case cash flow | $ |
NPV | $ |
Requirement 2: |
What is the sensitivity of NPV to changes in the sales figure? (Do not round intermediate calculations.Round your answer to 3 decimal places (e.g., 32.161).) |
Sensitivity of NPV | $ |
Requirement 3: |
If there is a 500-unit decrease in projected sales, how much would the NPV drop? (Do not round intermediate calculations. Input your answer as a positive value. Round your answer to 2 decimal places (e.g., 32.16).) |
NPV drop | $ |
Requirement 4: |
What is the sensitivity of OCF to changes in the variable cost figure? (A negative amount should be indicated by a minus sign. Round your answer to 2 decimal places (e.g., 32.16).) |
Sensitivity of OCF | $ |
Requirement 5: |
If there is $1 decrease in estimated variable costs, how much would the increase in OCF be? (Round your answer to the nearest whole dollar amount (e.g., 1,234,567).) |
Increase in OCF | $ |
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