PLEASE HELP ME ANSWER THE QUESTIONS I ASK AND NOT PASTE SOMEONE ELSES ANSWER BEL
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Question
PLEASE HELP ME ANSWER THE QUESTIONS I ASK AND NOT PASTE SOMEONE ELSES ANSWER BELOW. Seeking the steps to get the answer.
We are evaluating a project that costs $814,000, 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 121,000 units per year. Price per unit is $41, variable cost per unit is $21, and fixed costs are $816,442 per year. The tax rate is 34 percent, and we require a 12 percent return on this project. Question: What would be the percentage change in NPV if the sales are 1% higher than the base-case? Based on the previous answer, what would be the percentage change in NPV if projected sales fall by 2%? What is the change in OCF if variable costs are instead $20 per unit?
Explanation / Answer
Case 1 Case 2 Case 3 Case 4 Projected Sales units 121,000.00 122,210.00 118,580.00 121000 Price per unit $ 41.00 $ 41.00 $ 41.00 $ 41.00 Variable cost per unit $ 21.00 $ 21.00 $ 21.00 $ 20.00 Sales $ 4,961,000.00 $ 5,010,610.00 $ 4,861,780.00 $4,961,000.00 Less:Variable Cost (121000 x 21) $ 2,541,000.00 $ 2,566,410.00 $ 2,490,180.00 $2,420,000.00 Contribution $ 2,420,000.00 $ 2,444,200.00 $ 2,371,600.00 $2,541,000.00 Less Fixed Cost $ 816,442.00 $ 816,442.00 $ 816,442.00 $ 816,443.00 EBT $ 1,603,558.00 $ 1,627,758.00 $ 1,555,158.00 $1,724,557.00 Tax @ 34% $ 545,209.72 $ 553,437.72 $ 528,753.72 $ 586,349.38 EAT $ 1,058,348.28 $ 1,074,320.28 $ 1,026,404.28 $1,138,207.62 Add back Depreciation $ 74,000.00 $ 74,000.00 $ 74,000.00 $ 74,000.00 (814,000/11) Annual Cash inflows $ 1,132,348.28 $ 1,148,320.28 $ 1,100,404.28 $1,212,207.62 Case 1 Case 2 Case 3 Year PV Factor Cash flows Present Values Cash flows Present Values Cash flows Present Values 0 1.00000 -814000.00 -814000.00 -814000.00 -814000.00 -814000.00 - 814,000.00 1 0.89286 1132348.28 1011025.25 1148320.28 1025285.96 1100404.28 982,503.82 2 0.79719 1132348.28 902701.12 1148320.28 915433.90 1100404.28 877,235.55 3 0.71178 1132348.28 805983.14 1148320.28 817351.69 1100404.28 783,246.03 4 0.63552 1132348.28 719627.80 1148320.28 729778.30 1100404.28 699,326.81 5 0.56743 1132348.28 642524.82 1148320.28 651587.77 1100404.28 624,398.94 6 0.50663 1132348.28 573682.88 1148320.28 581774.79 1100404.28 557,499.05 7 0.45235 1132348.28 512216.86 1148320.28 519441.78 1100404.28 497,767.01 8 0.40388 1132348.28 457336.48 1148320.28 463787.30 1100404.28 444,434.83 9 0.36061 1132348.28 408336.14 1148320.28 414095.80 1100404.28 396,816.81 10 0.32197 1132348.28 364585.84 1148320.28 369728.40 1100404.28 354,300.73 11 0.28748 1132348.28 325523.07 1148320.28 330114.64 1100404.28 316,339.94 Total 5909543.40 6004380.33 5719869.54 Change in NPV over Base case 94836.93 -284510.79 %age of change (change / 5909543.40) 1.60% -4.74% Change of annual cash flow if Variable cost is $20 = $1,212,207.62-$1,132,348.28 =$79,859.34
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