We are evaluating a project that costs $604,000, has an 8-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 55,000 units per year. Price per unit is $36, variable cost per unit is $17, and fixed costs are $685,000 per year. The tax rate is 21 percent and we require a return of 15 percent on this project. Calculate the accounting break-even point. Calculate the base-case cash flow and NPV. What is the sensitivity of NPV to changes in the sales figure? What is the sensitivity of OCF to changes in the variable cost figure?
We are evaluating a project that costs $604,000, has an 8-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 55,000 units per year. Price per unit is $36, variable cost per unit is $17, and fixed costs are $685,000 per year. The tax rate is 21 percent and we require a return of 15 percent on this project. Calculate the accounting break-even point. Calculate the base-case cash flow and NPV. What is the sensitivity of NPV to changes in the sales figure? What is the sensitivity of OCF to changes in the variable cost figure?
Financial Management: Theory & Practice
16th Edition
ISBN:9781337909730
Author:Brigham
Publisher:Brigham
Chapter11: Cash Flow Estimation And Risk Analysis
Section: Chapter Questions
Problem 8P: The Rodriguez Company is considering an average-risk investment in a mineral water spring project...
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We are evaluating a project that costs $604,000, has an 8-year life, and has no salvage value. Assume that
Calculate the accounting break-even point. | |
Calculate the base-case cash flow and |
|
What is the sensitivity of NPV to changes in the sales figure? | |
What is the sensitivity of OCF to changes in the variable cost figure? |
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