CORPORATE FINANCE - LL+CONNECT ACCESS
12th Edition
ISBN: 9781264054961
Author: Ross
Publisher: MCG
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Chapter 7, Problem 1QAP
Sensitivity Analysis and Break-Even Point We are evaluating a project that costs $604,000, has an 8-year life, and has no salvage value. Assume that
a. Calculate the accounting break-even point.
b. Calculate the base-case cash flow and
c. 1%at is the sensitivity of OCF to changes in the variable cost figure? Explain what your answer tells you about a $l decrease m estimated variable costs.
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1. Sensitivity Analysis and Break-Even Point 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.
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 500-unit decrease in projected sales.
c. What is the sensitivity of OCF to changes in the variable cost figure? Explain what your answer tells you about a $1 decrease in
estimated variable costs.
2. Scenario Analysis In the previous problem, suppose the projections given for price, quantity, variable costs, and fixed costs are all
accurate to within +10…
Please fast answer
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Chapter 7 Solutions
CORPORATE FINANCE - LL+CONNECT ACCESS
Ch. 7 - Forecasting Risk What is forecasting risk? In...Ch. 7 - Sensitivity Analysis and Scenario Analysis What is...Ch. 7 - Prob. 3CQCh. 7 - Break-Even Point As a shareholder of a firm that...Ch. 7 - Prob. 5CQCh. 7 - Real Options Why does traditional NPV analysis...Ch. 7 - Real Options The Mango Republic has just...Ch. 7 - Prob. 8CQCh. 7 - Prob. 9CQCh. 7 - Project Analysis You are discussing a project...
Ch. 7 - Sensitivity Analysis and Break-Even Point We are...Ch. 7 - Prob. 2QAPCh. 7 - Prob. 3QAPCh. 7 - Prob. 4QAPCh. 7 - Prob. 5QAPCh. 7 - Prob. 6QAPCh. 7 - Prob. 7QAPCh. 7 - Prob. 8QAPCh. 7 - Prob. 9QAPCh. 7 - Prob. 10QAPCh. 7 - Prob. 11QAPCh. 7 - Prob. 12QAPCh. 7 - Prob. 13QAPCh. 7 - Prob. 14QAPCh. 7 - Prob. 15QAPCh. 7 - Prob. 16QAPCh. 7 - Prob. 17QAPCh. 7 - Prob. 18QAPCh. 7 - Prob. 19QAPCh. 7 - Prob. 20QAPCh. 7 - Prob. 21QAPCh. 7 - Prob. 22QAPCh. 7 - Prob. 23QAPCh. 7 - Prob. 24QAPCh. 7 - Prob. 25QAPCh. 7 - Prob. 26QAPCh. 7 - Prob. 28QAPCh. 7 - Prob. 29QAPCh. 7 - Prob. 30QAP
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