We are evaluating a project that costs $822,000, has a fifteen-year life, and ha

Question

We are evaluating a project that costs $822,000, has a fifteen-year life, and has no salvage value. Assume that depreciation is stright-line to zero over the life of the project. Sales are projected at 82,000 units per year. Price per unit is $43, variable cost per unit is $21, and fixed costs are $828,576 per year. The tax rate is 34 percent, and we require a 14 percent return on this project. (Round all answers to 2 decimal places, if # is negative indicate with a minus sign).

a. The accounting break-even point is _______ units.

b. The base-case cash flow is $______ and NPV is $______. The sensitivity of NPV to changes in the sales figure is $______. If there a 500-unit decrease in projected sales, we would expect the NPV to chge by $________.

c. The sensitivity of OCF to changes in the variable cost figure is $_______. Therefore, a $1 decrease in estimated variable costs results in a $______ change in OCF.

Explanation / Answer

1) If it is included in the fixed cost 37663 per year if not 40154 per year

2) 2550576 and NPV is 16622571.43    sensitivity is 202.7158 per unit so a decrease of 500 units will decrease NPV by 101357.9.

3)OCF=662411.84 and sensitivity is 54120 per dollar decrease , 54120

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