We are evaluating a project that costs $644,000, has an eight-year
We are evaluating a project that costs $644,000, 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 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 a 15 percent return 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 | 50343.75 units |
| b-1 | Calculate the base-case cash flow and NPV. (Do not round intermediate calculations and round your NPV answers to 2 decimal places. (e.g., 32.16)) |
| Cash flow | $2,84,925 |
| NPV | $6,34,550 |
| 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)) |
| ΔNPV / ΔQ | $ |
| c. | What is the sensitivity of OCF to changes in the variable cost figure? (Do not round intermediate calculations. Negative amount should be indicated by a minus sign.) |
| ΔOCF / ΔVC | $ |
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Solution: We are evaluating a project that costs $644,000, has an eight-year