Question: We are evaluating a project that costs $1,675,000, has a six-year life, and has no salvage value. Assume that depreciation is straight-line to zero over

 We are evaluating a project that costs $1,675,000, has a six-year

We are evaluating a project that costs $1,675,000, 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 91,000 units per year. Price per unit is $35.95, variable cost per unit is $21.40, and fixed costs are $775,000 per year. The tax rate is 35 percent, and we require a return of 11 percent on this project. Requirement 1: Calculate the base-case cash flow and NPV. (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).) Base-case cash flow NPV Requirement 2: What is the sensitivity of NPV to changes in the sales figure? (Do not round intermediate calculations Round your answer to 3 decimal places (e.g. 32.161).) Sensitivity of NPV Requirement 3: there is a 500-unit decrease in projected sales how much would the NPV drop? (Do not round Intermediate calculations. Input your answer as a positive value. Round your answer to z decima places (e.g., 32.16).) NPV drop

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!