Question

We are evaluating a project that costs $1,582,000, has a seven-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 87,100 units per year. Price per unit is $34.30, variable cost per unit is $20.55, and fixed costs are $751,000 per year. The tax rate is 30 percent, and we require a return of 12 percent on this project. Calculate the base-case operating cash flow and NPV. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) Base-case operating cash flow $ 2,455,572.50 NPV $ What is the sensitivity of NPV to changes in the sales figure? (Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.) Sensitivity of NPV $ If there is a 500-unit decrease in projected sales, how much would the NPV drop? (Input your answer as a positive value. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NPV drop $ 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.) Sensitivity of OCF $ If there is $1 decrease in estimated variable costs, how much would the increase in OCF be? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)

Answer 1