We are evaluating a project that costs $583,800, has a six-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 90,000 units per year. Price per unit is $41, variable cost per unit is $27, and fixed costs are $695,000 per year. The tax rate is 25 percent, and we require a return of 9 percent on this project.
a-1.
Calculate the accounting break-even point. (Do not round intermediate calculations and round your answer to the nearest whole number, e. g., 32.)
a-2. What is the degree of operating leverage at the accounting break-even point? (Do not round intermediate calculations and round your answer to 3 decimal places, e. g., 32.161.)
b-1. Calculate the base-case cash flow and NPV. (Do not round intermediate calculations. Round your cash flow answer to the nearest whole number, e. g., 32. Round your NPV answer to 2 decimal places, e. g., 32.16.)
b-2. What is the sensitivity of NPV to changes in the quantity sold? (Do not round intermediate calculations and round your answer to 2 decimal places, e. g., 32.16.)
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. )
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We are evaluating a project that costs $583,800, has a six-year life, and has no salvage value. Assu...
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