We are evaluating a project that costs $997,000, has a seven-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 84,000 units per year. Price per unit is $42, variable cost per unit is $26, and fixed costs are $1,008,964 per year. The tax rate is 36 percent, and we require a 16 percent return on this project.

Requirement 1:

Calculate the accounting break-even point.

Break-even point

units

Requirement 2:

(a)	Calculate the base-case cash flow and NPV.

Requirement 2:

(a)	Calculate the base-case cash flow and NPV.

(b)	What is the sensitivity of NPV to changes in the sales figure?

(c)	Calculate the change in NPV If there is a 500-unit decrease in projected sales.

Requirement 3:

(a)	What is the sensitivity of OCF to changes in the variable cost figure?

(b)	Calculate the change in OCF if there is a $1 decrease in estimated variable costs.