Sensitivity Analysis and break-even point We are evaluating a project that costs $780,000, has an eight-year...

Sensitivity Analysis and break-even point We are evaluating a project that costs $780,000, 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 92,000 units per year. price per unit is $37, variable cost per unit is $23, and fixed costs are $875,000 per year. The tax rate is 35 percent, and we require a return of 15 percent on this project.

A calculate the accounting break-even point.

B Calculate the base-case cash flow and NPV. What is the sensitivity of the NPV to hanges in the sales figure? Explain what your answer tells you about a 5---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 a $1 decrease in estimated variable costs.

Expert Solution

jeff jeffy answered 1 year ago

A. Sensitivity Analysis and Break-Even Point We are evaluating a project that costs $780,000, has an...

A. Sensitivity Analysis and Break-Even Point We are evaluating a project that costs $780,000, 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 92,000 units per year. Price per unit is $37, variable cost per unit is $23, and fixed costs are $875,000 per year. The tax rate is 35 percent, and we require a return of 15 percent on this project. B....

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Sensitivity Analysis and break-even point We are evaluating a project that costs $780,000, has an eight-year...

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