We are evaluating a project that costs $832,000, has an eight-year life, and has
ID: 2649476 • Letter: W
Question
We are evaluating a project that costs $832,000, 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 40,000 units per year. Price per unit is $40, variable cost per unit is $15, and fixed costs are $700,000 per year. The tax rate is 35 percent, and we require a 18 percent return on this project.
Calculate the accounting break-even point.
What is the degree of operating leverage at the accountin g break-even point? (Round your answer to 3 decimal places. (e.g., 32.161))
Calculate the base-case cash flow and NPV. (Round your NPV answer to 2 decimal places. (e.g., 32.16))
What is the sensitivity of NPV to changes in the sales figure? (Do not round intermediate calculations and round your answer to 3 decimal places. (e.g., 32.161))
We are evaluating a project that costs $832,000, 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 40,000 units per year. Price per unit is $40, variable cost per unit is $15, and fixed costs are $700,000 per year. The tax rate is 35 percent, and we require a 18 percent return on this project.
Explanation / Answer
Answer:
a-1: Break even point = Total Fixed cost /( Sales Price
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