LO 17 points eBook B 01 Hint Print References Problem 7-1 Sensitivity Analysis and Break-Even Point We are evaluating a project that costs $650,000, has a life of 5 years, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 45,000 units per year. Price per unit is $56, variable cost per unit is $26, and fixed costs are $860,000 per year. The tax rate is 21 percent, and we require a return of 14 percent on this project. a. Calculate the accounting break-even point. (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) b-1. Calculate the base-case cash flow and NPV. (Do not round intermediate calculations and round your NPV answer to 2 decimal places, e.g., 32.16.) b-2. What is the sensitivity of NPV to changes in the sales figure? (Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.) What is the sensitivity of OCF to changes in the variable cost figure? (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.) a. Break-even point b-1. Cash flow b-1. NPV b-2. ANPV/AQ c. AOCF/AVC units
LO 17 points eBook B 01 Hint Print References Problem 7-1 Sensitivity Analysis and Break-Even Point We are evaluating a project that costs $650,000, has a life of 5 years, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 45,000 units per year. Price per unit is $56, variable cost per unit is $26, and fixed costs are $860,000 per year. The tax rate is 21 percent, and we require a return of 14 percent on this project. a. Calculate the accounting break-even point. (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) b-1. Calculate the base-case cash flow and NPV. (Do not round intermediate calculations and round your NPV answer to 2 decimal places, e.g., 32.16.) b-2. What is the sensitivity of NPV to changes in the sales figure? (Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.) What is the sensitivity of OCF to changes in the variable cost figure? (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.) a. Break-even point b-1. Cash flow b-1. NPV b-2. ANPV/AQ c. AOCF/AVC units
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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17
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eBook
B
01
Hint
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References
Problem 7-1 Sensitivity Analysis and Break-Even Point
We are evaluating a project that costs $650,000, has a life of 5 years, and has no
salvage value. Assume that depreciation is straight-line to zero over the life of the
project. Sales are projected at 45,000 units per year. Price per unit is $56, variable cost
per unit is $26, and fixed costs are $860,000 per year. The tax rate is 21 percent, and we
require a return of 14 percent on this project.
a. Calculate the accounting break-even point. (Do not round intermediate
calculations and round your answer to the nearest whole number, e.g., 32.)
b-1. Calculate the base-case cash flow and NPV. (Do not round intermediate
calculations and round your NPV answer to 2 decimal places, e.g., 32.16.)
b-2. What is the sensitivity of NPV to changes in the sales figure? (Do not round
intermediate calculations and round your answer to 3 decimal places, e.g.,
32.161.)
What is the sensitivity of OCF to changes in the variable cost figure? (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.)
a. Break-even point
b-1. Cash flow
b-1. NPV
b-2. ANPV/AQ
c. AOCF/AVC
units
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