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Problem:

We are evaluating a project that costs $660,000, has a five-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 69,000 units per year. Price per unit is $58, variable cost per unit is $38, and fixed costs are $660,000 per year. The tax rate is 35 percent, and we require a 12 percent return on this project.

Required:

Question 1: Calculate the accounting break-even point per unit?

Question 2: Calculate the base-case cash flow and NPV?

Question 3: What is the sensitivity of NPV to changes in the sales figure?

Question 4: What is the sensitivity of OCF to changes in the variable cost figure?

Note: Provide support for rationale.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M91166745

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