We are evaluating a project that costs $1,120,000, has a life of 10 years, and...
80.2K
Verified Solution
Link Copied!
Question
Accounting
We are evaluating a project that costs $1,120,000, has a life of 10 years, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 35,000 units per year. Price per unit is $50, variable cost per unit is $25, and fixed costs are $620,000 per year. The tax rate is 22 percent, and we require a return of 11 percent on this project.
a.
Calculate the accounting break-even point. (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)
b-1.
Calculate the base-case cash flow and NPV. (Do not round intermediate calculations and round your NPV answer to 2 decimal places, e.g., 32.16.)
b-2.
What is the sensitivity of NPV to changes in the sales figure? (Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.)
c.
What is the sensitivity of OCF to changes in the variable cost figure? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)
Answer & Explanation
Solved by verified expert
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!
