We are evaluating a project that costs $769,000, has an 10-year life, and has no salvage...

We are evaluating a project that costs $769,000, has an 10-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 87,000 units per year. Price per unit is $44, variable cost per unit is $20, and fixed costs are $782,073 per year. The tax rate is 32 percent, and we require a 15 percent return on this project.

Requirement 1: Break-Even

(a) Calculate the accounting break-even point. (Do not round your intermediate calculations.)

(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)

(d) Based on this sensitivity, what is the change in NPV (in dollars) if there is a 9 percent decrease in projected sales? (Do not round your intermediate calculations.) (Click to select)

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 7% decrease in the variable costs? (Do not round your intermediate calculations.) (Click to select)

Expert Solution

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

jeff jeffy answered 2 years ago

We are evaluating a project that costs $1,920,000, has a 6 year life, and no salvage...

We are evaluating a project that costs $1,920,000, has a 6 year life, and no salvage value. Assume that depreciation is staright-line to zero over the life of the project. Sales are projected at 94,000 units per year. Price per unit is $38.43, variable cost per unit is $23.60 and fixed costs are $839,000 per year. The tax rate is 23 percent and we require a return of 12 percent on this project. Suppose the projections given for the price,...

We are evaluating a project that costs $972,000, has a 4 year life, and no salvage...

We are evaluating a project that costs $972,000, has a 4 year life, and no salvage value. Assume that depreciation is staright-line to zero over the life of the project. Sales are projected at 88,000 units per year. Price per unit is $35.15, variable cost per unit is $21.40 and fixed costs are $768,000 per year. The tax rate is 35 percent and we require a return of 13 percent on this project. A) Calculate the best case operating cash...

we are evaluating a project that costs $690,000, has a five year life, and no salvage...

we are evaluating a project that costs $690,000, has a five year life, and no salvage value. Assume that straightline to zero over the life of the project. sales are projected at 71,000 units per year. price per unit is $75, variable cost per unit is $38 and fixed costs are $790,000 per year. The tax rate is 35%, and we require a return of 15% on this project Calculate the best case and wore case npv figures

We are evaluating a project that costs $739,600, has aneight-year life, and has no salvage...

We are evaluating a project that costs $739,600, has an eight-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 80,000 units per year. Price per unit is $49, variable cost per unit is $34, and fixed costs are $735,000 per year. The tax rate is 23 percent, and we require a return of 9 percent on this project. Suppose the projections given for price, quantity,...

We are evaluating a project that costs $604,000, has an 8-year life, and has no salvage...

We are evaluating a project that costs $604,000, has an 8-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 55,000 units per year. Price per unit is $36, variable cost per unit is $17, and fixed costs are $685,000 per year. The tax rate is 21 percent and we require a return of 15 percent on this project. Suppose the projections given for price, quantity,...

We are evaluating a project that costs $748,000, has a twelve-year life, and has no salvage...

We are evaluating a project that costs $748,000, has a twelve-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 113,000 units per year. Price per unit is $36, variable cost per unit is $23, and fixed costs are $760,716 per year. The tax rate is 37 percent, and we require a 12 percent return on this project. Requirement 1: Calculate the accounting break-even point.(Round your...

We are evaluating a project that costs $500,000, has an eight-year life, and has no salvage...

We are evaluating a project that costs $500,000, has an eight-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 50,000 units per year. Price per unit is $40, variable cost per unit is $25, and fixed costs are $600,000 per year. The tax rate is 22 percent, and we require a return of 12 percent on this project. Suppose the projections given for price, quantity,...

We are evaluating a project that costs $1,080,000, has a ten-year life, and has no salvage...

We are evaluating a project that costs $1,080,000, 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 52,000 units per year. Price per unit is $48, variable cost per unit is $27, and fixed costs are $756,000 per year. The tax rate is 25 percent, and we require a return of 15 percent on this project. a. Calculate the accounting break-even point. (Do...

We are evaluating a project that costs $660,000, has a five-year life, and has no salvage...

We are evaluating a project that costs $660,000, has a five-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 69,000 units per year. Price per unit is $58, variable cost per unit is $40, and fixed costs are $660,000 per year. The tax rate is 22 percent, and we require a return of 12 percent on this project. Suppose the projections given for price, quantity,...

We are evaluating a project that costs $841,992, has an eight-year life, and has no salvage...

We are evaluating a project that costs $841,992, has an eight-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 60,261 units per year. Price per unit is $44, variable cost per unit is $19, and fixed costs are $420,392 per year. The tax rate is 35%, and we require a return of 20% on this project. Calculate the Accounting Break-Even Point. (Round answer to 0...

Question