We are evaluating a project that costs $1,160,000, has a ten-year life, and has

Question

We are evaluating a project that costs $1,160,000, has a ten-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 44,000 units per year. Price per unit is $45, variable cost per unit is $20, and fixed costs are $645,000 per year. The tax rate is 35 percent, and we require a 20 percent return on this project.

Calculate the accounting break-even point. (Do not round intermediate calculations and round your final answer to nearest whole number. (e.g., 32))

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))

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))

What is the sensitivity of OCF to changes in the variable cost figure? (Do not round intermediate calculations and Negative amount should be indicated by a minus sign.)

We are evaluating a project that costs $1,160,000, has a ten-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 44,000 units per year. Price per unit is $45, variable cost per unit is $20, and fixed costs are $645,000 per year. The tax rate is 35 percent, and we require a 20 percent return on this project.

Explanation / Answer

We are evaluating a project that costs $1,160,000, has a ten-year life, and has

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