Problem 11-5 Sensitivity Analysis and Break-Even [LO1, 3] We are evaluating a project that costs $630,700,...

Problem 11-5 Sensitivity Analysis and Break-Even [LO1, 3]

We are evaluating a project that costs $630,700, has a seven-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 90,000 units per year. Price per unit is $46, variable cost per unit is $33, and fixed costs are $720,000 per year. The tax rate is 25 percent, and we require a return of 10 percent on this project.

a-1.	Calculate the accounting break-even point. (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)
a-2.	What is the degree of operating leverage at the accounting break-even point? (Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.)
b-1.	Calculate the base-case cash flow and NPV. (Do not round intermediate calculations. Round your cash flow answer to the nearest whole number, e.g., 32. Round your NPV answer to 2 decimal places, e.g., 32.16.)
b-2.	What is the sensitivity of NPV to changes in the quantity sold? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
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. )

Solutions

Expert Solution

I have answered the question below using excel and have attached the image below.

Please up vote for the same and thanks!!!

Do reach out in the comments for any queries

Answer:

a-2)

DOL = 1 + FC/OCF = 1 + 720000/90100 = 8.991

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

Problem 11-5 Sensitivity Analysis and Break-Even [LO1, 3] We are evaluating a project that costs $583,800,...

Problem 11-5 Sensitivity Analysis and Break-Even [LO1, 3] We are evaluating a project that costs $583,800, 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 90,000 units per year. Price per unit is $41, variable cost per unit is $27, and fixed costs are $695,000 per year. The tax rate is 25 percent, and we require a return of 9 percent on this...

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....

Problem 9-1 Sensitivity Analysis and Break-Even Point We are evaluating a project that costs $520,000, has...

Problem 9-1 Sensitivity Analysis and Break-Even Point We are evaluating a project that costs $520,000, has a five-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 64,000 units per year. Price per unit is $46, variable cost per unit is $26, and fixed costs are $832,000 per year. The tax rate is 35 percent, and we require a return of 20 percent on this project....

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...

what are the drawbacks of sensitivity analysis, scenario analysis and break-even analysis? are they reliable in...

what are the drawbacks of sensitivity analysis, scenario analysis and break-even analysis? are they reliable in open market conditons?

Problem 11-22 Sensitivity Analysis [LO1] McGilla Golf has decided to sell a new line of golf...

Problem 11-22 Sensitivity Analysis [LO1] McGilla Golf has decided to sell a new line of golf clubs. The company would like to know the sensitivity of NPV to changes in the price of the new clubs and the quantity of new clubs sold. The clubs will sell for $795 per set and have a variable cost of $355 per set. The company has spent $200,000 for a marketing study that determined the company will sell 65,000 sets per year for...

Problem 11-22 Sensitivity Analysis [LO1] McGilla Golf has decided to sell a new line of golf...

Problem 11-22 Sensitivity Analysis [LO1] McGilla Golf has decided to sell a new line of golf clubs. The company would like to know the sensitivity of NPV to changes in the price of the new clubs and the quantity of new clubs sold. The clubs will sell for $830 per set and have a variable cost of $430 per set. The company has spent $153,000 for a marketing study that determined the company will sell 57,000 sets per year for...

Problem 11-19 Project Analysis [LO1, 2, 3, 4] You are considering a new product launch. The...

Problem 11-19 Project Analysis [LO1, 2, 3, 4] You are considering a new product launch. The project will cost $2,300,000, have a four-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 310 units per year; price per unit will be $19,200, variable cost per unit will be $13,700, and fixed costs will be $700,000 per year. The required return on the project is 9 percent, and the relevant tax rate is 24 percent....

Problem 11-19 Project Analysis [LO1, 2, 3, 4] You are considering a new product launch. The...

Problem 11-19 Project Analysis [LO1, 2, 3, 4] You are considering a new product launch. The project will cost $2,225,000, have a four-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 280 units per year; price per unit will be $19,700, variable cost per unit will be $13,250, and fixed costs will be $670,000 per year. The required return on the project is 12 percent, and the relevant tax rate is 21 percent....

What are sensitivity analysis, scenario analysis, break-even analysis, and simulation? Why are these analyses important, and...

What are sensitivity analysis, scenario analysis, break-even analysis, and simulation? Why are these analyses important, and how should they be used? please provide APA references !

Subjects