Question

b) What is the sensitivity of NPV to changes in the sales figure? (Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.)

We are evaluating a project that costs $1,920,000, has a 6-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 94,500 units per year. Price per unit is $38.43, variable cost per unit is $23.60, and fixed costs are $839,000 per year. The tax rate is 23 percent, and we require a return of 10 percent on this project.

e) If there is a $1 decrease in estimated variable costs, how much would the OCF change? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)

Answer 1

b) What is the sensitivity of NPV to changes in the sales figure?
=(38.43-23.60)*(1-23%)/10%*(1-1/1.1^6)
=49.73315745

e) If there is a $1 decrease in estimated variable costs, how much would the OCF change?
=(-1)*(94500*(-1))*(1-23%)
=72765