We are evaluating a project that costs $729,600, has an eight-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 90,000 units per year. Price per unit is $47, variable cost per unit is $34, and fixed costs are $725,000 per year. The tax rate is 21 percent, and we require a return of 11 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.) 2. - What is the degree of operating leverage at the accounting break-even point? (Do 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 8.960 units
We are evaluating a project that costs $729,600, has an eight-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 90,000 units per year. Price per unit is $47, variable cost per unit is $34, and fixed costs are $725,000 per year. The tax rate is 21 percent, and we require a return of 11 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.) 2. - What is the degree of operating leverage at the accounting break-even point? (Do 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 8.960 units
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Please Calculate the break even point, Cash Flow,
Transcribed Image Text:We are evaluating a project that costs $729,600, has an eight-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 90,000 units per year. Price per unit is $47, variable cost
per unit is $34, and fixed costs are $725,000 per year. The tax rate is 21 percent, and we
require a return of 11 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
8.960
units
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