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

We are evaluating a project that costs $604,000, 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 $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.

A. Calculate the accounting breaK-even point.

B. Calculate the house -case cash flow abd NPV. What is the sensitivity if NPVto changes in the sales figure? Explain what your answer tells you about a 500-unit decrease in projected sales.

C. What is the sensitivity of OCF to changes in the variable cost figure?Explain what your answer tells you about $1 decreases is estimated variable costs.

Expert Solution

jeff jeffy answered 1 year ago

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

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