PLEASE ANSWER QUESTION 6

5 Sensitivity Analysis and Break-Even [LO1, 3] We are evaluating a project that costs $786,000, has an Z eight-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 65,000 units per year. Price per unit is $48, variable cost per unit is S25, and fixed costs are $725,000 per year. The tax rate is 22 percent, and we require a return of 10 percent on this project. a. Calculate the accounting break-even point. What is the degree of operating leverage at the accounting break-even point? Page 377 b. Calculate the base-case cash flow and NPV. What is the sensitivity of NPV to changes in the quantity sold? Explain what your answer tells you about a 500-unit decrease in the quantity sold. you about a SI decrease in estimated variable costs 6.Scenario Analysis [LO2] In the previous problem, suppose the projections given for price, quantity, variable costs, and fixed costs are all accurate to within +10 percent. Calculate the best-case and worst-case NPV figures. 5 Sensitivity Analysis and Break-Even [LO1, 3] We are evaluating a project that costs $786,000, has an Z eight-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 65,000 units per year. Price per unit is $48, variable cost per unit is S25, and fixed costs are $725,000 per year. The tax rate is 22 percent, and we require a return of 10 percent on this project. a. Calculate the accounting break-even point. What is the degree of operating leverage at the accounting break-even point? Page 377 b. Calculate the base-case cash flow and NPV. What is the sensitivity of NPV to changes in the quantity sold? Explain what your answer tells you about a 500-unit decrease in the quantity sold. you about a SI decrease in estimated variable costs 6.Scenario Analysis [LO2] In the previous problem, suppose the projections given for price, quantity, variable costs, and fixed costs are all accurate to within +10 percent. Calculate the best-case and worst-case NPV figures