Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

We are evaluating a project that costs $991,000, has a ten-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 $991,000, has a ten-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 93,000 units per year. Price per unit is $36, variable cost per unit is $21, and fixed costs are $1,009,829 per year. The tax rate is 33 percent, and we require a 16 percent return on this project. Requirement 1: Calculate the accounting break-even point.(Round your answer to the nearest whole number. (e.g., 32)) Requirement 2: (a) Calculate the base-case cash flow and NPV.(Do not include the dollar signs (\$). Round your answers to 2 decimal places. (e.g., 32.16)) (b)What is the sensitivity of NPV to changes in the sales figure? (Do not include the dollar sign (\$). Round your answer to 3 decimal places. (e.g., 32.161)) (c) Calculate the change in NPV if there is a 500-unit decrease in projected sales. (Do not include the dollar sign (\$). Negative amount should be indicated by a minus sign. Round your answer to 2 decimal places. (e.g., 32.16)) Requirement 3: (a) What is the sensitivity of OCF to changes in the variable cost figure? (Do not include the dollar sign (\$). Negative amount should be indicated by a minus sign. Round your answer to the nearest whole number. (e.g., 32)) (b)Calculate the change in OCF if there is a $1 decrease in estimated variable costs. (Do not include the dollar sign (\$). Round your answer to the nearest whole number. (e.g.,32))

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access with AI-Powered 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

Students also viewed these Finance questions