You are evaluating a project that costs $840,000, has seven-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 90,000 units per year. Price per unit is $40, variable cost per unit is $24, and fixed costs are $900,000 units per year. Tax rate is 40%, and you require a 12% return on this project.
a. Calculate the accounting break-even point.
b. Calculate the base-case cash flow and NPV. What is the sensitivity of NPV to changes in the sales figure? Explain what your answer tells you about a 300-unit decrease in project sales