We are evaluating a project that costs $924,000, 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 75,000 units per year. Price per unit is $46, variable cost per unit is $31, and fixed costs are $825,000 per year. The tax rate is 35 percent, and we require a 15 percent return on this project.
A-1. Calculate the accounting break-even point.
Break even point _______ Units
A-2. What is the degree of operating leverage at the accounting break-even point? (Round your answer to 3 decimal places. (e.g., 32.161))
DOL ________?
B-1. Calculate the base-case cash flow and NPV. (Round your NPV answers to 2 decimal places. (e.g., 32.16))
Cash flow $________ âNPV/âQ $________
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))
âNPV/âQ $_________
C. What is the sensitivity of OCF to changes in the variable cost figure? (Negative amount should be indicated by a minus sign.)
âOCF/âVC $___________
| We are evaluating a project that costs $924,000, 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 75,000 units per year. Price per unit is $46, variable cost per unit is $31, and fixed costs are $825,000 per year. The tax rate is 35 percent, and we require a 15 percent return on this project. A-1. Calculate the accounting break-even point.
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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 $
