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In: Finance

We are evaluating a project that costs $787,000, has a fourteen-year life, and has no salvage...

We are evaluating a project that costs $787,000, has a fourteen-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 109,000 units per year. Price per unit is $38, variable cost per unit is $20, and fixed costs are $789,361 per year. The tax rate is 34 percent, and we require a 16 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 $    

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