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Category > Accounting Posted 14 Jun 2017 My Price 6.00

Sensitivity Analysis and Break-Even Point We are evaluating a project that costs $804,000

Sensitivity Analysis and Break-Even Point We are evaluating a project that costs $804,000, has an eight-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 95,000 units per year. Price per unit is $41, variable cost per unit is $27, and fixed costs are $925,000 per year. The tax rate is 35 percent, and we require a 15 percent return 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.

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Alpha Geek
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Status NEW Posted 14 Jun 2017 09:06 AM My Price 6.00

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file 1497432120-Answer.docx preview (212 words )
A-----------nsw-----------er -----------A ----------- Ac-----------cou-----------nti-----------ng -----------Bre-----------ak -----------Eve-----------n P-----------oin-----------t =----------- Fi-----------xed----------- Co-----------sts-----------/Co-----------ntr-----------ibu-----------tio-----------n m-----------arg-----------in -----------per----------- un-----------it -----------Acc-----------oun-----------tin-----------g B-----------rea-----------k E-----------ven----------- Po-----------int----------- = -----------$ 9-----------25,-----------000-----------/$ -----------14 -----------= 6-----------6,0-----------71 -----------uni-----------ts ----------- A-----------nsw-----------er -----------B ----------- Ca-----------lcu-----------lat-----------ion----------- of----------- an-----------nua-----------l C-----------ash-----------flo-----------w C-----------ont-----------rib-----------uti-----------on -----------Mar-----------gin----------- $ -----------13,-----------30,-----------000----------- 95-----------,00-----------0 u-----------nit-----------s *----------- ($----------- 41----------- le-----------ss -----------$ 2-----------7) -----------les-----------s: -----------Fix-----------ed -----------Cos-----------ts -----------$ 9-----------,25-----------,00-----------0 l-----------ess-----------: D-----------epr-----------eci-----------ati-----------on -----------$ 1-----------,00-----------,50-----------0 (-----------$ 8-----------04,-----------000-----------/8 -----------yea-----------rs)----------- In-----------com-----------e b-----------efo-----------re -----------tax-----------es -----------$ 3-----------,04-----------,50-----------0 l-----------ess-----------: t-----------axe-----------s @----------- 35----------- % -----------$ 1-----------,06-----------,57-----------5 N-----------et -----------Inc-----------ome----------- $ -----------1,9-----------7,9-----------25 -----------add-----------: D-----------epr-----------eci-----------ati-----------on
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