1) We are evaluating a project that costs $1,160,000, has a ten-year life, and has no salvage...

70.2K

Verified Solution

Question

Finance

1)
We are evaluating a project that costs $1,160,000, has aten-year life, and has no salvage value. Assume that depreciationis straight-line to zero over the life of the project. Sales areprojected at 44,000 units per year. Price per unit is $45, variablecost per unit is $20, and fixed costs are $696,000 per year. Thetax rate is 35 percent, and we require a return of 20 percent onthis project.

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

Break-even point ___ units

b-1 Calculate the base-case cash flow and NPV.(Do not round intermediate calculations and round your NPVanswer to 2 decimal places, e.g., 32.16.)
Cash flow $
NPV $

b-2 What is the sensitivity of NPV to changes in the salesfigure? (Do not round intermediate calculations and roundyour answer to 3 decimal places, e.g., 32.161.)

?NPV/?Q      $_

b-3 Calculate the change in NPV if sales were todrop by 500 units. (Enter your answer as a positive number.Do not round intermediate calculations and round your answer to 2decimal places, e.g., 32.16.)

NPV would   (select decrease or increase) by $

c. What is the sensitivity of OCF to changes inthe variable cost figure? (A negative answer should beindicated by a minus sign. Do not round intermediate calculationsand round your answer to the nearest whole number, e.g.,32.)

?OCF/?VC          $____

Answer & Explanation Solved by verified expert

3.8 Ratings (463 Votes)

See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

1)We are evaluating a project that costs $1,160,000, has aten-year life, and has no salvage value. Assume that depreciationis straight-line to zero over the life of the project. Sales areprojected at 44,000 units per year. Price per unit is $45, variablecost per unit is $20, and fixed costs are $696,000 per year. Thetax rate is 35 percent, and we require a return of 20 percent onthis project.a. Calculate the accounting break-even point.(Do not round intermediate calculations and round youranswer to the nearest whole number, e.g., 32.)Break-even point _______ unitsb-1 Calculate the base-case cash flow and NPV.(Do not round intermediate calculations and round your NPVanswer to 2 decimal places, e.g., 32.16.)Cash flow$NPV$b-2 What is the sensitivity of NPV to changes in the salesfigure? (Do not round intermediate calculations and roundyour answer to 3 decimal places, e.g., 32.161.)?NPV/?Q $_______b-3 Calculate the change in NPV if sales were todrop by 500 units. (Enter your answer as a positive number.Do not round intermediate calculations and round your answer to 2decimal places, e.g., 32.16.)NPV would ______ (select decrease or increase) by $________c. What is the sensitivity of OCF to changes inthe variable cost figure? (A negative answer should beindicated by a minus sign. Do not round intermediate calculationsand round your answer to the nearest whole number, e.g.,32.)?OCF/?VC $________