We are evaluating a project that costs $832,000, 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 40,000 units per year. Price per unit is $40, variable cost per unit is $15, and fixed costs are $700,000 per year. The tax rate is 35 percent, and we require a return of 18 percent on this project.
a. Calculate the accounting break-even point. (Do not round intermediate calculations and round your final answer to nearest whole number (e.g., 32).)
Break-even point 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 $
NPV $
b-2 What is the sensitivity of NPV to changes in the sales figure? (Do not round intermediate calculations and round your final answer to 3 decimal places (e.g., 32.161).)
ÎNPV/ÎQ $
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 increase/ decrease would by $
c. What is the sensitivity of OCF to changes in the variable cost figure? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your final answer to nearest whole number (e.g., 32).)
ÎOCF/ÎVC $
We are evaluating a project that costs $832,000, 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 40,000 units per year. Price per unit is $40, variable cost per unit is $15, and fixed costs are $700,000 per year. The tax rate is 35 percent, and we require a return of 18 percent on this project.
a. Calculate the accounting break-even point. (Do not round intermediate calculations and round your final answer to nearest whole number (e.g., 32).)
Break-even point 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 $
NPV $
b-2 What is the sensitivity of NPV to changes in the sales figure? (Do not round intermediate calculations and round your final answer to 3 decimal places (e.g., 32.161).)
ÎNPV/ÎQ $
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 increase/ decrease would by $
c. What is the sensitivity of OCF to changes in the variable cost figure? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your final answer to nearest whole number (e.g., 32).)
ÎOCF/ÎVC $
Related questions
We are evaluating a project that costs $848,000, has aneight-year life, and has no salvage value. Assume that depreciationis straight-line to zero over the life of the project. Sales areprojected at 62,000 units per year. Price per unit is $40, variablecost per unit is $20, and fixed costs are $636,000 per year. Thetax rate is 35 percent, and we require a return of 20 percent onthis project.
a. Calculate the accounting break-even point.(Do not round intermediate calculations and round youranswer to the nearest whole number, e.g., 32.)
Break-even point______ units
b-1 Calculate the base-case cash flow and NPV.(Do not round intermediate calculations and round your NPVanswer to 2 decimal places, e.g., 32.16.)
| Cash flow | $ |
| NPV | $ |
b-2 What is the sensitivity of NPV to changes in the salesfigure? (Do not round intermediate calculations and roundyour answer to 3 decimal places, e.g., 32.161.)
ÎNPV/ÎQ $
b-3 Calculate the change in NPV if sales were todrop by 500 units. (Enter your answer as a positive number.Do not round intermediate calculations and round your answer to 2decimal places, e.g., 32.16.)
NPV would (Click toselect) increase decrease by$
c. What is the sensitivity of OCF to changes inthe variable cost figure? (A negative answer should beindicated by a minus sign. Do not round intermediate calculationsand round your answer to the nearest whole number, e.g.,32.)
ÎOCF/ÎVC $
Needing help with portion b-3 and c. I have solved the otherportions.
We are evaluating a project that costs $848,000, has aneight-year life, and has no salvage value. Assume that depreciationis straight-line to zero over the life of the project. Sales areprojected at 62,000 units per year. Price per unit is $40, variablecost per unit is $20, and fixed costs are $636,000 per year. Thetax rate is 35 percent, and we require a return of 20 percent onthis project.
a. Calculate the accounting break-even point.(Do not round intermediate calculations and round youranswer to the nearest whole number, e.g., 32.)
Break-evenpoint units
b-1 Calculate the base-case cash flow and NPV.(Do not round intermediate calculations and round your NPVanswer to 2 decimal places, e.g., 32.16.)
| Cash flow | $ |
| NPV | $ |
b-2 What is the sensitivity of NPV to changes in the salesfigure? (Do not round intermediate calculations and roundyour answer to 3 decimal places, e.g., 32.161.)
ÎNPV/ÎQ $
b-3 Calculate the change in NPV if sales were todrop by 500 units. (Enter your answer as a positive number.Do not round intermediate calculations and round your answer to 2decimal places, e.g., 32.16.)
NPV would (Click toselect) increase decrease by$
c. What is the sensitivity of OCF to changes inthe variable cost figure? (A negative answer should beindicated by a minus sign. Do not round intermediate calculationsand round your answer to the nearest whole number, e.g.,32.)
ÎOCF/ÎVC $
