Question
You are are evaluating a project that costs $1,140,000, has a ten-year life, and has no salvage value. Assume that depreciation is straight-line to zero
You are are evaluating a project that costs $1,140,000, 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 54,000 units per year. Price per unit is $50, variable cost per unit is $20, and fixed costs are $741,000 per year. The tax rate is 35 percent, and we require a return of 18 percent on this project. Calculate the sensitivity of NPV to changes in the sales figure, changes in NPV if sales were to drop by 500 units, and sensitivity of OCF to changes in variable figure cost.
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