Problem 7-1 Sensitivity Analysis and Break-Even Point We are evaluating a project that costs $756,000, has a life of 6 years, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 32,000 units per year. Price per unit is $60, variable cost per unit is $25, and fixed costs are $665,000 per year. The tax rate is 24 percent, and we require a return of 12 percent on this project. b-1. Calculate the accounting break-even point. (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) 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. C. a. Break-even point b-1. Cash flow b-1. NPV b-2. ANPV/AQ c. AOCF/AVC $ $ 376,040 -65,228.19 units
Problem 7-1 Sensitivity Analysis and Break-Even Point We are evaluating a project that costs $756,000, has a life of 6 years, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 32,000 units per year. Price per unit is $60, variable cost per unit is $25, and fixed costs are $665,000 per year. The tax rate is 24 percent, and we require a return of 12 percent on this project. b-1. Calculate the accounting break-even point. (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) 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. C. a. Break-even point b-1. Cash flow b-1. NPV b-2. ANPV/AQ c. AOCF/AVC $ $ 376,040 -65,228.19 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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Problem 7-1 Sensitivity Analysis and Break-Even Point
We are evaluating a project that costs $756,000, has a life of 6 years, and has no
salvage value. Assume that depreciation is straight-line to zero over the life of the
project. Sales are projected at 32,000 units per year. Price per unit is $60, variable cost
per unit is $25, and fixed costs are $665,000 per year. The tax rate is 24 percent, and
we require a return of 12 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.)
C. 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
$
$
376,040
-65,228.19
units](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fe7a3a66d-c290-45fe-a7c9-2a55b25abb62%2F43f93f63-e475-4c35-82a8-ebf8600946e0%2Fjwrl0vg_processed.jpeg&w=3840&q=75)
Transcribed Image Text:1
0.83
points
eBook
B
Hint
Print
References
Problem 7-1 Sensitivity Analysis and Break-Even Point
We are evaluating a project that costs $756,000, has a life of 6 years, and has no
salvage value. Assume that depreciation is straight-line to zero over the life of the
project. Sales are projected at 32,000 units per year. Price per unit is $60, variable cost
per unit is $25, and fixed costs are $665,000 per year. The tax rate is 24 percent, and
we require a return of 12 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.)
C. 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
$
$
376,040
-65,228.19
units
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