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Problem: We are calculating a project which costs $1,675,000, has a 6-year life, and has no salvage value. Suppose that depreciation is straight-line to zero over the life of project. Sales are projected at 91,000 units each year. Price per unit is $35.95, variable cost per unit is $21.40, and fixed costs are $775,000 each year. The tax rate is 35 percent, and we need a return of 11 percent on this project.

problem1. Compute the base-case cash flow and NPV

problem2. What is sensitivity of NPV to changes in sales figure?

problem3. If there is a 500-unit lessens in projected sales, how much would NPV drop?

problem4. What is sensitivity of OCF to changes in variable cost figure?

problem5. If there is a $1 reduces in estimated variable costs, how much would the raise in OCF be?

Financial Accounting, Accounting

  • Category:- Financial Accounting
  • Reference No.:- M94214

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