CORPORATE FINANCE- ACCESS >C<
CORPORATE FINANCE- ACCESS >C<
12th Edition
ISBN: 9781307447248
Author: Ross
Publisher: MCG/CREATE
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Chapter 7, Problem 1QAP

Sensitivity Analysis and Break-Even Point We are evaluating a project that costs $604,000, 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 $36, variable cost per unit is $17, and fixed costs are $6S5,000 per year. The tax rate is 21 percent and we requtre a return of 15 percent on this project.

a. Calculate the accounting break-even point.

b. Calculate the base-case cash flow and NPV What is the sensitivity of N? V to changes in the sales figure? Explain what your answer tells you about a 500-umt decrease in projected sales.

c. 1%at is the sensitivity of OCF to changes in the variable cost figure? Explain what your answer tells you about a $l decrease m estimated variable costs.

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