Maurice Tutor

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    Argosy University/ Phoniex University/
    Nov-2005 - Oct-2011

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    Phoniex University
    Oct-2001 - Nov-2016

Category > Accounting Posted 30 Jul 2017 My Price 7.00

Sensitivity Analysis and Break-Even

5.        Sensitivity Analysis and Break-Even [LO1, 3] We are evaluating a project that costs

$924,000, 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 75,000 units per year. Price per unit is $46, variable cost per unit is $31, and fixed costs are $825,000 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. What is the degree of operating le- verage at 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.

Answers

Maurice Tutor
(5)
Status NEW Posted 30 Jul 2017 04:07 PM My Price 7.00

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