Question

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 answer to the nearest whole number. (e.g., 32))

Break-even point
units

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))

Base-case cash flow $
  
NPV $
  

(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))

Sensitivity of NPV $
  

(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))

Change in NPV $
  

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))

Sensitivity of OCF $
  

(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))

Change in OCF $

Answer 1

1.
=(760716+748000/12)/(36-23)=63311.4871794872

2.
=(113000*(36-23)-760716-748000/12)*(1-37%)+748000/12=469282.253333333

3.
=-748000+((113000*(36-23)-760716-748000/12)*(1-37%)+748000/12)/12%*(1-1/1.12^12)=2158909.89451149

4.
=((1*(36-23))*(1-37%))/12%*(1-1/1.12^12)=50.7319249064772

5.
=-500*((1*(36-23))*(1-37%))/12%*(1-1/1.12^12)=-25365.9624532386

6.
=(113000*(-1))*(1-37%)=-71190

7.
=-(113000*(-1))*(1-37%)=71190