Log in
Finance
1
answer
0
watching
895
views

We are evaluating a project that costs $841,000, has an 11-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 139,000 units per year. Price per unit is $38, variable cost per unit is $29, and fixed costs are $848,569 per year. The tax rate is 35 percent, and we require a 18 percent return on this project. (A) Calculate the accounting break-even point (B) What is the degree of operating leverage at the accounting break-even point? (C) Calculate the base-case cash flow. (D) Calculate the NPV (E) What is the sensitivity of NPV to changes in the sales figure? (F) What your answer tells you about a 500-unit decrease in projected sales? (G) What is the sensitivity of OCF to changes in the variable cost figure? (H) What your answer tells you about a $1 decrease in estimated variable costs?

Please show work.

Watch
1
answer
0
watching
895
views

For unlimited access to Homework Help, a Homework+ subscription is required.

Irving Heathcote
Irving HeathcoteLv2
29 Sep 2019

Unlock all answers

Get 1 free homework help answer.
Already have an account? Log in
Share

Related questions

Sensitivity Analysis and Break-Even Point We are evaluating a project that costs $836,000, 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 93,000 units per year. Price per unit is $43, variable cost per unit is $28, and fixed costs are $945,000 per year. The tax rate is 35 percent, and we require a return of 15 percent on this project. 1. Calculate the accounting break-even point. 2. Calculate the base-case cash flow and NPV. What is the sensitivity of NPV to changes in the sales figure? Explain what your answer tells you about a 500-unit decrease in projected sales. 3. 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

Sensitivity Analysis and Break-Even Point: We are evaluating a project that costs $644,000, has an eight-year life, and has no salvage. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 70,000 units per year. Price per unit is $37, variable cost per unit is $21, and fixed costs are $725,000 per year. The tax rate is 35 percent, and we require return on this project.

A. Calculate the accounting break-even point.

B. Calculate the base-case cash flow and NPV. What is the sensitivity of NPV to changes in the sales figure? Explain what your answer tells you about a 500-unit decrease in projected sales.

C. What is the sensitivity of OCF to changes in the variable cost figure? Explain your answer tells you about a $1 decrease in estimated variable costs.

We are evaluating a project that costs $903,000, has an 11-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 104,000 units per year. Price per unit is $35, variable cost per unit is $21, and fixed costs are $908,418 per year. The tax rate is 32 percent, and we require a 19 percent return on this project.

(Do not round your intermediate calculations.)

Requirement 1:

(a) Calculate the accounting break-even point.

(b) What is the degree of operating leverage at the accounting break-even point?

Requirement 2:

(a) Calculate the base-case cash flow

(b) Calculate the NPV.

(c) What is the sensitivity of NPV to changes in the sales figure?

(d) What your answer tells you about a 500-unit decrease in projected sales?

Requirement 3:

(a) What is the sensitivity of OCF to changes in the variable cost figure?

(b) What your answer tells you about a $1 decrease in estimated variable costs?

Weekly leaderboard

Home
Homework Help 3,900,000
Finance 370,000
Start filling in the gaps now
Log in