We are evaluating a project that costs $2,070,000, has a 7-year life, and has no salvage...
Fantastic news! We've Found the answer you've been seeking!
Question:
![image text in transcribed](https://s3.amazonaws.com/si.experts.images/answers/2024/05/664960688761e_8406649606881da6.jpg)
Transcribed Image Text:
We are evaluating a project that costs $2,070,000, has a 7-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 93,400 units per year. Price per unit is $38.73, variable cost per unit is $23.85, and fixed costs are $854,000 per year. The tax rate is 23 percent, and we require a return of 10 percent on this project. a. Calculate the base-case operating cash flow and NPV. Note: Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. b. What is the sensitivity of NPV to changes in the sales figure? Note: Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161. c. If there is a 450-unit decrease in projected sales, how much would the NPV change? Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. d. What is the sensitivity of OCF to changes in the variable cost figure? Note: 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. e. If there is a $1 decrease in estimated variable costs, how much would the OCF change? Note: Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32. We are evaluating a project that costs $2,070,000, has a 7-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 93,400 units per year. Price per unit is $38.73, variable cost per unit is $23.85, and fixed costs are $854,000 per year. The tax rate is 23 percent, and we require a return of 10 percent on this project. a. Calculate the base-case operating cash flow and NPV. Note: Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. b. What is the sensitivity of NPV to changes in the sales figure? Note: Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161. c. If there is a 450-unit decrease in projected sales, how much would the NPV change? Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. d. What is the sensitivity of OCF to changes in the variable cost figure? Note: 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. e. If there is a $1 decrease in estimated variable costs, how much would the OCF change? Note: Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.
Expert Answer:
Posted Date:
Students also viewed these finance questions
-
A list of all of the raw materials needed to manufacture a job. Question 5 options: Bill of Materials Job costing Job cost record Question 6 (1 point) A system for assigning costs to products or...
-
A 2-kg block hangs from a spring balance calibrated in Newtons that is attached to the ceiling of an elevator (Figure). What does the balance read when? (a) The elevator is moving up with a constant...
-
Your supervisor decides to test the newly hired engineer with a problem that you have not seen before. Recover p-xylene as the center cut (Figure 13-6) from a feed that is \(50.0 \mathrm{wt} \%...
-
What are the four major categories of ethical conduct that must be adhered to by CMAS?
-
For each of the following red flags, identify which fraud exposure the risk falls under: management and directors, relationships with others, organization and industry, or financial results and...
-
Points: 0 of 6 K Evaluate the derivative of the following function at the given point. Check your result using the derivative evaluation of a graphing calculator. y = 2x + 11x - 1; (-3, -88) The...
-
A family friend has asked your help in analyzing the operations of three anonymous companies operating in the same service sector industry. Supply the missing data in the table below: (Loss amounts...
-
1. Direct materials rate variance, $800 unfavourable. 2. Direct materials efficiency variance, $1,800 favourable. 3. Direct manufacturing labour rate variance, $4,000 favourable. 4. Direct...
-
Which skills are critical and dynamic work environment and how do you plan to enhance Apply these skills in your current role or feature projects ?
-
The benefits and costs of increased security measures are difficult to quantify. For example, in real life, it is difficult to know for certain the probability of intercepting terrorists, and it's...
-
During 2013, Rogue Corporation reported sales revenue of $610,000. Inventory at both the beginning and end of the year totaled $80,000. The inventory turnover ratio for the year was 5.0. What amount...
-
Figure 1 is a pyramid of degree 5, made of 25 equilateral triangles, and its origin is origin 0(x, y). The side of each equilateral triangle is of length I. 0 Figure 1: Graphic representation of root...
-
Cash Flow Estimation Estimate the free cash flow of 2019 under the following assumptions. Assumptions: 1. Year 2019 sales projection: $31,556,000,000 2. All the other income statement accounts are...
-
Consider model (9.18). What is the effect on the model parameter estimates, their standard errors, and the goodness-of-fit statistics when (a) The times at risk are doubled, but the numbers of deaths...
-
Edson Manufacturing Company purchased 100 percent of the common stock of Liverpool Manufacturing Company for $600,000. Liverpools stockholders equity included common stock of $400,000 and retained...
-
What are three methods traditionally used for applying factory overhead to jobs? Discuss the application of each method.
-
Classifying fixed and variable costs Classify each of the following items of factory overhead as either a fixed or a variable cost. (Include any costs that you consider to be semi variable within the...
![Mobile App Logo](https://dsd5zvtm8ll6.cloudfront.net/includes/images/mobile/finalLogo.png)
Study smarter with the SolutionInn App