Question: We are evaluating a project that costs $2,220,000, has a 8-year life, and has no salvage value. Assume that depreciation is straight- line to zero

 We are evaluating a project that costs $2,220,000, has a 8-year

We are evaluating a project that costs $2,220,000, has a 8-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 94.700 units per year. Price per unit Is $39.03, variable cost per unit Is $24.10, and fixed costs are $869,000 per year. The tax rate is 23 percent, and we require a return of 11 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 300-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

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 Mathematics Questions!