In: Finance
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 flow and NPV
B) What is the sensitivity of NPV to changes in the sales figure?
C) If there is a 500-unit decrease in projected sales, how much would the NPV drop?
D) What is the sensitivity of OCF to changes in the variable cost figure?
E) If there is $1 decrease in estimated variable costs, how much would the increase in OCF be?
FOR C OPTION : IT IS ASKED NPV WOULD DROP BY : SO ANSWER IS WRITTEN POSITIVE
IF UNITS DROP BY 500, CHANGE IN NPV IS NEGATIVE BUT DROP WORD IS GIVEN, SO NO NEGATIVE SIGN