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

Question

We are evaluating a project that costs $822,000, has an fifteen-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 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.

The base-case cash flow is $ _________ and NPV is $ ________ (round to 2 decimal places). The sensitivity of NPV to changes in the sales figure is $ _________ (round to 3 decimal places). If there is a 500-unit decrease in projected sales, we would expect the NPV to change by $ ________ (round to 2 decimal places, if a negative number designate with a minus).

Explanation / Answer

cash flow

sales 3526000

variable cost 1722000

fixed cost 828576

depreciation 54800

less tax 313012.16

inflow 607611.84

add depreciation 54800

cash flow 662411.84

PV of inflow 662411.84*6.142=4068644.796

NPV= 4068644.796-$822,000=3246644

the sensitivity of NPV=4068644.796

Related Questions

Navigate

• Browse (All)
• Browse W
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.