We are evaluating a project that costs $1,740,000, has a 6-year life, and has no salvage value. Assume that depreciation is straight-lin to zero over the life of the project. Sales are projected at 86,700 units per year. Price per unit is $38.07, variable cost per unit is $23.3 and fixed costs are $821,000 per year. The tax rate is 22 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 250-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.

Project Evaluation and Sensitivity AnalysisWe can evaluate the project's profitability and analyze…

Answered: We are evaluating a project that costs $1,740,000, has a 6-year life, and has no salvage value. Assume that depreciation is straight-lin to zero over the life…

FINANCIAL ACCOUNTING

10th Edition

ISBN: 9781259964947

Author: Libby

Publisher: MCG

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We are evaluating a project that costs $1,740,000, has a 6-year life, and has no salvage value. Assume that depreciation is straight-lin
to zero over the life of the project. Sales are projected at 86,700 units per year. Price per unit is $38.07, variable cost per unit is $23.3
and fixed costs are $821,000 per year. The tax rate is 22 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 250-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.

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