We are evaluating a project that costs $585,000, has a six-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 85,000 units per year. Price per unit is $37, variable cost per unit is $23, and fixed costs are $675,000 per year. The tax rate is 21 percent, and we require a return of 9 percent on this project. a-1.Calculate the accounting break-even point. (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) a- What is the degree of operating leverage at the accounting break-even point? (Do 2. not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.) b- Calculate the base-case cash flow and NPV. (Do not round intermediate 1. calculations. Round your cash flow answer to the nearest whole number, e.g., 32. Round your NPV answer to 2 decimal places, e.g., 32.16.) b- What is the sensitivity of NPV to changes in the quantity sold? (Do not round 2. intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) 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-1. Break-even point a-2. DOL b-1. Cash flow b-1. NPV b-2. ANPV/AQ c. AOCF/AVC units
We are evaluating a project that costs $585,000, has a six-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 85,000 units per year. Price per unit is $37, variable cost per unit is $23, and fixed costs are $675,000 per year. The tax rate is 21 percent, and we require a return of 9 percent on this project. a-1.Calculate the accounting break-even point. (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) a- What is the degree of operating leverage at the accounting break-even point? (Do 2. not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.) b- Calculate the base-case cash flow and NPV. (Do not round intermediate 1. calculations. Round your cash flow answer to the nearest whole number, e.g., 32. Round your NPV answer to 2 decimal places, e.g., 32.16.) b- What is the sensitivity of NPV to changes in the quantity sold? (Do not round 2. intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) 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-1. Break-even point a-2. DOL 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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Transcribed Image Text:We are evaluating a project that costs $585,000, has a six-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 85,000 units per year. Price per unit is $37, variable cost per unit is $23,
and fixed costs are $675,000 per year. The tax rate is 21 percent, and we require a
return of 9 percent on this project.
a-1.Calculate the accounting break-even point. (Do not round intermediate calculations
and round your answer to the nearest whole number, e.g., 32.)
a- What is the degree of operating leverage at the accounting break-even point? (Do
2. not round intermediate calculations and round your answer to 3 decimal places,
e.g., 32.161.)
b- Calculate the base-case cash flow and NPV. (Do not round intermediate
1. calculations. Round your cash flow answer to the nearest whole number, e.g., 32.
Round your NPV answer to 2 decimal places, e.g., 32.16.)
b- What is the sensitivity of NPV to changes in the quantity sold? (Do not round
2. intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
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-1. Break-even point
a-2. DOL
b-1. Cash flow
b-1. NPV
b-2. ANPV/AQ
c. AOCF/AVC
units
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