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.

Alpha Geek

(8)

Status NEW Posted 03 Aug 2017 03:08 PM My Price 8.00

A A-----------cco-----------unt-----------ing----------- Br-----------eak----------- Ev-----------en -----------Poi-----------nt -----------= F-----------ixe-----------d C-----------ost-----------s/C-----------ont-----------rib-----------uti-----------on -----------mar-----------gin----------- pe-----------r u-----------nit----------- Ac-----------cou-----------nti-----------ng -----------Bre-----------ak -----------Eve-----------n P-----------oin-----------t =----------- $ -----------925-----------,00-----------0/$----------- 14----------- = -----------66,-----------071----------- un-----------its----------- An-----------swe-----------r B----------- Ca-----------lcu-----------lat-----------ion-----------

Not Rated(0)

• Buy Answer