Chapter 7, Problem 13QAP

A

Summary Introduction

Adequate information:

Cost of the project is $\$720,000$ with $4$ year life and no salvage value.

Depreciation is a straight line to zero.

Expected sales are $380$ units per year.

Price per unit is $\$17,400$ .

Variable cost is $\$14,100$ per unit.

Fixed cost is $\$680,000$ per year.

Required rate of return is $15\%$ .

Tax rate is $21\%$ .

To compute: Upper and Lower bounds for the projections, base-case NPV, best-case, and worst-case scenarios.

Introduction: Lower bound is a value that is each data set's element's value minus one or the same. An upper bound is a number that exceeds or is equal to each data element in a set. The current value of a future stream of payments from a business, project, or investment is determined using net present value, or NPV. The best-case scenario is any circumstance or result that could not possibly be better; the ideal result. The worst-case scenario takes into account the direst or extreme result that could occur in a particular circumstance.

B

Summary Introduction

Adequate information:

Base-case NPV was $\$682,536.67$ when the fixed cost was $\$680,000$ .

To compute: Evaluating the sensitivity of base-case NPV to changes in fixed costs.

Introduction: The current value of a future stream of payments from a business, project, or investment is determined using net present value, or NPV. Fixed costs are outlaid that a business must cover regardless of the particular commercial activities it engages in.

C

Summary Introduction

Adequate information:

Fixed cost is $\$680,000$ per year

Contribution is $\$3,300$

Depreciation is $\$180,000$

To compute: Accounting break-even level of output

Introduction: The sales level at which a company makes exactly zero profits, given a set amount of fixed costs that it must cover each month, is known as the accounting breakeven point.