Question

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

$

Answer 1

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