Question

We are evaluating a project that costs $756,000, has a six-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 67,000 units per year. Price per unit is $60, variable cost per unit is $25, and fixed costs are $693,000 per year. The tax rate is 35 percent, and we require a return of 20 percent on this project. a. Calculate the accounting break-even point. (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) Break-even point 23400 units b-1 Calculate the base-case cash flow and NPV. (Do not round intermediate calculations and round your NPV answer to 2 decimal places, e.g., 32.16.) Cash flow $ 1,117,900 NPV $ 2961576.45 b-2 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.) ΔNPV/ΔQ $ 1.261 b-3 Calculate the change in NPV if sales were to drop by 500 units. (Enter your answer as a positive number. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NPV would by $ 37827 c. 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.) ΔOCF/ΔVC $

Answer 1

i think the answer for breakeven units is wrong. Actual answer is 19800 units

WHEN SALES DECREASE BY 500 UNITS

CHANGE IN NPV = 2961588.76 - 2923760.08 = 37827.68

LET ME KNOW IF ANY ISSUES