We are evaluating a project that costs RM604,000, has an 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 55,000 units per year. Price per unit is RM36, variable cost per unit is RM17, and fixed costs are RM685,000 per year. The tax rate is 21 percent and we require a return of 15 percent on this project. (i) Calculate the base-case cash flow and NPV. (ii) Assume the sales figure increases to 56,000 units per year, calculate the sensitivity of NPV to changes in the sales figure?
We are evaluating a project that costs RM604,000, has an 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 55,000 units per year. Price per unit is RM36, variable cost per unit is RM17, and fixed costs are RM685,000 per year. The tax rate is 21 percent and we require a return of 15 percent on this project. (i) Calculate the base-case cash flow and NPV. (ii) Assume the sales figure increases to 56,000 units per year, calculate the sensitivity of NPV to changes in the sales figure?
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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We are evaluating a project that costs RM604,000, has an 8-year life, and has no salvage
value. Assume that
projected at 55,000 units per year. Price per unit is RM36, variable cost per unit is RM17, and
fixed costs are RM685,000 per year. The tax rate is 21 percent and we require a return of 15
percent on this project.
(i) Calculate the base-case cash flow and NPV.
(ii) Assume the sales figure increases to 56,000 units per year, calculate the sensitivity of NPV
to changes in the sales figure?
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