We are evaluating a project that costs $500,000, has an eight-year life, and has no salvage...

We are evaluating a project that costs $500,000, 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 50,000 units per year. Price per unit is $40, variable cost per unit is $25, and fixed costs are $600,000 per year. The tax rate is 35 percent, and we require a return of 12 percent on this project.

a. Calculate the accounting break-even point.

b-1 Calculate the base-case cash flow and NPV.

b-2 What is the sensitivity of NPV to changes in the sales figure?

c. What is the sensitivity of OCF to changes in the variable cost figure?

Expert Solution

jeff jeffy answered 1 year ago

We are evaluating a project that costs $500,000, has an eight-year life, and has no salvage...

We are evaluating a project that costs $500,000, 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 50,000 units per year. Price per unit is $40, variable cost per unit is $25, and fixed costs are $600,000 per year. The tax rate is 22 percent, and we require a return of 12 percent on this project. Suppose the projections given for price, quantity,...

We are evaluating a project that costs $500,000, has an eight-year life, and has no salvage...

We are evaluating a project that costs $500,000, 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 50,000 units per year. Price per unit is $40, variable cost per unit is $25, and fixed costs are $600,000 per year. The tax rate is 22 percent, and we require a return of 12 percent on this project. Suppose the projections given for price, quantity,...

We are evaluating a project that costs $500,000, has an eight-year life, and has no salvage...

We are evaluating a project that costs $500,000, 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 50,000 units per year. Price per unit is $40, variable cost per unit is $25, and fixed costs are $600,000 per year. The tax rate is 22 percent, and we require a return of 12 percent on this project. Suppose the projections given for price, quantity,...

We are evaluating a project that costs $500,000, has an eight-year life, and has no salvage...

We are evaluating a project that costs $500,000, 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 50,000 units per year. Price per unit is $40, variable cost per unit is $25, and fixed costs are $600,000 per year. The tax rate is 35 percent, and we require a return of 12 percent on this project. a-1 Calculate the accounting break-even point....

We are evaluating a project that costs $500,000, has an eight-year life, and has no salvage...

We are evaluating a project that costs $500,000, 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 50,000 units per year. Price per unit is $40, variable cost per unit is $25, and fixed costs are $600,000 per year. The tax rate is 35 percent, and we require a return of 12 percent on this project. Suppose the projections given for price, quantity,...

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We are evaluating a project that costs $892,000, 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 85,000 units per year. Price per unit is $63, variable cost per unit is $45, and fixed costs are $779,000 per year. The tax rate is 35%, and we require a 10% return on this project. Suppose the projections given for price, quantity, variable costs, and...

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We are evaluating a project that costs $500,000, has an eight-year life, and has no salvage...

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