Question

We are evaluating a project that costs $926,000, has a nine-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 110,000 units per year. Price per unit is $41, variable cost per unit is $22, and fixed costs are $930,630 per year. The tax rate is 36 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))

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))

(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))

(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))

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))

(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))

Answer 1

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