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We are evaluating a project that costs $768,000, has a six-year life, and has no salvage...

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Finance

We are evaluating a project that costs $768,000, has a six-yearlife, and has no salvage value. Assume that depreciation isstraight-line to zero over the life of the project. Sales areprojected at 57,000 units per year. Price per unit is $60, variablecost per unit is $35, and fixed costs are $770,000 per year. Thetax rate is 35 percent, and we require a return of 15 percent onthis project.

   

a.

Calculate the accounting break-even point. (Do not roundintermediate calculations and round your answer to the nearestwhole number, e.g., 32.)

  

  Break-even pointunits

     

b-1

Calculate the base-case cash flow and NPV. (Do not roundintermediate calculations and round your NPV answer to 2 decimalplaces, e.g., 32.16.)

  

  Cash flow$   
  NPV$   

  

b-2

What is the sensitivity of NPV to changes in the sales figure?(Do not round intermediate calculations and round youranswer to 3 decimal places, e.g., 32.161.)

  

  ΔNPV/ΔQ$   

  

c.

What is the sensitivity of OCF to changes in the variable costfigure? (Do not round intermediate calculations. A negativeanswer should be indicated by a minus sign.)

  

  ΔOCF/ΔVC$   

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