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 OCE to changes in the variable cost figure?
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 OCE to changes in the variable cost figure?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:### Project Evaluation Analysis
We are evaluating a project that costs $2,130,000, has an 8-year life, and no salvage value. Depreciation is straight-line to zero over the project's life. Sales are projected at 90,600 units per year. The price per unit is $38.85, variable cost per unit is $23.95, and fixed costs are $860,000 per year. The tax rate is 25%, and a return of 11% is required on this project.
#### Tasks:
1. **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.*
2. **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.*
3. **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.*
4. **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.*
5. **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.*
#### Table for Calculations:
| **a. Base-case operating cash flow** | |
|--------------------------------------|------------------------------------------|
| **Base-case NPV** | |
| **b. NPV sensitivity** | |
| **c. NPV change** | |
| **d. OCF sensitivity** | |
| **e. OCF change** | |
This analysis will help in understanding the impact of changes in sales and cost figures on the project's financial outcomes.
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