Please answer ALL questions 1 and 2 for the following: We are evaluating a proje
ID: 2775179 • Letter: P
Question
Please answer ALL questions 1 and 2 for the following:
We are evaluating a project that costs $680,000, has a five-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 64,000 units per year. Price per unit is $46, variable cost per unit is $26, and fixed costs are $685,000 per year. The tax rate is 35 percent, and we require a return of 20 percent on this project.
1.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).)
2. What is the sensitivity of OCF to changes in the variable cost figure? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your final answer to nearest whole number (e.g., 32).)
We are evaluating a project that costs $680,000, has a five-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 64,000 units per year. Price per unit is $46, variable cost per unit is $26, and fixed costs are $685,000 per year. The tax rate is 35 percent, and we require a return of 20 percent on this project.
1.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).)
2. What is the sensitivity of OCF to changes in the variable cost figure? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your final answer to nearest whole number (e.g., 32).)
Explanation / Answer
so the 1st case is best case and 3rd case is worst case.
1ST CASE Particulasr/Years 0 1 2 3 4 5 Initial Investment(A) -680000 Depriciation(B)=680000/5 (B) 136000 136000 136000 136000 136000 Profit=49000*(46-26)-685000 295000 295000 295000 295000 295000 Profit After Tax=(1-0.35)*(C-A) (D) 103350 103350 103350 103350 103350 Cash Flow=A+B+D -680000 239350 239350 239350 239350 239350 Discounted @20% -680000 199458.33 166215.3 138512.7 115427.3 96189.4 NPV=Sum of all cash Flw 35803.02 2ND CASE Price,Quantity,variable cost,Fixed cost increase by 10% Particulasr/Years 0 1 2 3 4 5 Initial Investment(A) -680000 Depriciation(B)=680000/5 (B) 136000 136000 136000 136000 136000 Profit=(49000*1.10)*(46*1.10-26*1.10)-685000*1.10 432300 432300 432300 432300 432300 Profit After Tax=(1-0.35)*(C-A) (D) 192595 192595 192595 192595 192595 Cash Flow=A+B+D -680000 328595 328595 328595 328595 328595 Discounted @20% -680000 273829.17 228191 190159.1 158466 132055 NPV=Sum of all cash Flw 302700.20 3RD CASE Price,Quantity,variable cost,Fixed cost decrease by 10% Particulasr/Years 0 1 2 3 4 5 Initial Investment(A) -680000 Depriciation(B)=680000/5 (B) 136000 136000 136000 136000 136000 Profit=(49000*0.90)*(46*0.90-26*0.90)-685000*0.90 177300 177300 177300 177300 177300 Profit After Tax=(1-0.35)*(C-A) (D) 26845 26845 26845 26845 26845 Cash Flow=A+B+D -680000 162845 162845 162845 162845 162845 Discounted @20% -680000 135704.17 113086.8 94239 78532.5 65443.75 NPV=Sum of all cash Flw -192993.77Related Questions
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