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We are evaluating a project that costs 804 000 has an
We are evaluating a project that costs $804,000, has an eightyear life, and has no salvage value. Assume that depreciation is straightline to zero over the life of the project. Sales are projected at 95,000 units per year. Price per unit is $41, variable cost per unit is $27, and fixed costs are $925,000 per year. The tax rate is 35 percent, and we require a 15 percent return on this project.
a. Calculate the accounting breakeven point.
b. Calculate the basecase cash flow and NPV. What is the sensitivity of NPV to changes in the sales figure? Explain what your answer tells you about a 500unit decrease in projected sales.
c. What is the sensitivity of OCF to changes in the variable cost figure? Explain what your answer tells you about a $1 decrease in estimated variable costs.
a. Calculate the accounting breakeven point.
b. Calculate the basecase cash flow and NPV. What is the sensitivity of NPV to changes in the sales figure? Explain what your answer tells you about a 500unit decrease in projected sales.
c. What is the sensitivity of OCF to changes in the variable cost figure? Explain what your answer tells you about a $1 decrease in estimated variable costs.
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