Problem 9-20 Sensitivity Analysis [LO 3] We are evaluating a project that costs $2,160,000, 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 90,900 units per year. Price per unit is $38.91, variable cost per unit is $24.00, and fixed costs are $863,000 per year. The tax rate is 21 percent, and we require a return of 11 percent on this project. a. Calculate the base-case operating cash flow and NPV. (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? (Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.) c. If there is a 400-unit decrease in projected sales, how much would the NPV change? (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? (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? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) а. Base-case operating cash flow Base-case NPV b. NPV sensitivity с. NPV change d. OCF sensitivity е. OCF change
Problem 9-20 Sensitivity Analysis [LO 3] We are evaluating a project that costs $2,160,000, 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 90,900 units per year. Price per unit is $38.91, variable cost per unit is $24.00, and fixed costs are $863,000 per year. The tax rate is 21 percent, and we require a return of 11 percent on this project. a. Calculate the base-case operating cash flow and NPV. (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? (Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.) c. If there is a 400-unit decrease in projected sales, how much would the NPV change? (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? (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? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) а. Base-case operating cash flow Base-case NPV b. NPV sensitivity с. NPV change d. OCF sensitivity е. OCF change
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 9-20 Sensitivity Analysis (LO 3]
We are evaluating a project that costs $2,160,000, 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 90,900 units per year. Price per unit is $38.91, variable cost per unit is
$24.00, and fixed costs are $863,000 per year. The tax rate is 21 percent, and we
require a return of 11 percent on this project.
a. Calculate the base-case operating cash flow and NPV. (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? (Do not round
intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.)
c. If there is a 400-unit decrease in projected sales, how much would the NPV change?
(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? (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? (Do not round intermediate calculations and round your answer to the
nearest whole number, e.g., 32.)
Base-case operating cash flow
а.
Base-case NPV
b.
NPV sensitivity
NPV change
с.
d.
OCF sensitivity
е.
OCF change](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fca0ee9f0-26a0-4b69-a817-d7c752512585%2F9a2425b0-d893-457f-8e99-f7a44722664a%2F98mihc_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Problem 9-20 Sensitivity Analysis (LO 3]
We are evaluating a project that costs $2,160,000, 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 90,900 units per year. Price per unit is $38.91, variable cost per unit is
$24.00, and fixed costs are $863,000 per year. The tax rate is 21 percent, and we
require a return of 11 percent on this project.
a. Calculate the base-case operating cash flow and NPV. (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? (Do not round
intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.)
c. If there is a 400-unit decrease in projected sales, how much would the NPV change?
(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? (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? (Do not round intermediate calculations and round your answer to the
nearest whole number, e.g., 32.)
Base-case operating cash flow
а.
Base-case NPV
b.
NPV sensitivity
NPV change
с.
d.
OCF sensitivity
е.
OCF change
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