We are evaluating a project that costs $1,374,000, has a six-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 87,400 units per year. Price per unit is $34.45, variable cost per unit is $20.70, and fixed costs are $754,000 per year. The tax rate is 30 percent, and we require a return of 11 percent on this project.
Requirement 1: Calculate the base-case cash flow and NPV. (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).)
Base-case cash flow $ ?
NPV $ ?
Requirement 2: What is the sensitivity of NPV to changes in the sales figure? (Do not round intermediate calculations. Round your answer to 3 decimal places (e.g., 32.161).)
Sensitivity of NPV $ ?
Requirement 3: If there is a 500-unit decrease in projected sales, how much would the NPV drop? (Do not round intermediate calculations. Input your answer as a positive value. Round your answer to 2 decimal places (e.g., 32.16).)
NPV drop $ ?
Requirement 4: What is the sensitivity of OCF to changes in the variable cost figure? (A negative amount should be indicated by a minus sign. Round your answer to 2 decimal places (e.g., 32.16).)
Sensitivity of OCF $?
Requirement 5: If there is $1 decrease in estimated variable costs, how much would the increase in OCF be? (Round your answer to the nearest whole dollar amount (e.g., 1,234,567).)
Increase in OCF $?