We are evaluating a project that costs $1,800,000, has a 6-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 87,300 units per year. Price per unit is $38.19, variable cost per unit is $23.40, and fixed costs are $827,000 per year. The tax rate is 24 percent, and we require a return of 9 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 350-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. a. Base-case operating cash flow $ 1,035,248.68 Base-case NPV $ 2,844,041.29 b. NPV sensitivity c. NPV change d. OCF sensitivity e. OCF change
We are evaluating a project that costs $1,800,000, has a 6-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 87,300 units per year. Price per unit is $38.19, variable cost per unit is $23.40, and fixed costs are $827,000 per year. The tax rate is 24 percent, and we require a return of 9 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 350-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. a. Base-case operating cash flow $ 1,035,248.68 Base-case NPV $ 2,844,041.29 b. NPV sensitivity c. NPV change d. OCF sensitivity e. 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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Transcribed Image Text:We are evaluating a project that costs $1,800,000, has a 6-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 87,300 units per year. Price per unit is $38.19, variable cost per unit is $23.40,
and fixed costs are $827,000 per year. The tax rate is 24 percent, and we require a return of 9 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 350-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.
a. Base-case operating cash flow
$
1,035,248.68
Base-case NPV
$
2,844,041.29
b. NPV sensitivity
c. NPV change
d. OCF sensitivity
e. OCF change
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