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Problem 11-5 Sensitivity Analysis and Break-Even [LO1, 3] We are evaluating a project that costs $822,600,...
Problem 11-5 Sensitivity Analysis and Break-Even [LO1, 3]
|
We are evaluating a project that costs $822,600, has a nine-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 75,000 units per year. Price per unit is $53, variable cost per unit is $37, and fixed costs are $755,000 per year. The tax rate is 22 percent, and we require a return of 9 percent on this project. |
| a-1. |
Calculate the accounting break-even point. (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) |
| a-2. | What is the degree of operating leverage at the accounting break-even point? (Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.) |
| b-1. | Calculate the base-case cash flow and NPV. (Do not round intermediate calculations. Round your cash flow answer to the nearest whole number, e.g., 32. Round your NPV answer to 2 decimal places, e.g., 32.16.) |
| b-2. | What is the sensitivity of NPV to changes in the quantity sold? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
| c. | What is the sensitivity of OCF to changes in the variable cost figure? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32. ) |
Solutions
jeff jeffy answered 1 hour agoRelated Solutions
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over the life of the project. Sales are projected at 92,000 units
per year. price per unit is $37, variable cost per unit is $23, and
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