We are evaluating a project that costs $670,000, has a five-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 59,000 units per year. Price per unit is $44, variable cost per unit is $24, and fixed costs are $871,000 per year. The tax rate is 35 percent, and we require a return of 18 percent on this project.
a. Calculate the accounting break-even point. (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)
Break-even point units
b-1 Calculate the base-case cash flow and NPV. (Do not round intermediate calculations and round your NPV answer to 2 decimal places, e.g., 32.16.)
Cash flow $
NPV $
b-2 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.)
ΔNPV/ΔQ $
b-3 Calculate the change in NPV if sales were to drop by 500 units. (Enter your answer as a positive number. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
NPV would (Click to select) decrease increase by $
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.)
ΔOCF/ΔVC $