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nework i We are evaluating a project that costs $650,000, has a five-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 47,000 units per year. Price per unit is $56, variable cost per unit is $26. and fixed costs are $845,000 per year. The tax rate is 35 percent, and we require a return of 10 percent on this project. 0. Calculate the accounting break even point. (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) Break-even point units b-1 Calculate the base-case cash flow and NPV. (Do not round intermediate calculations and round your NPV answer to 2 decimal places, e.g., 32.16.) Cash flow NPY b-2 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.) ANPVIAQ $0 b-3 Calculate the change in NPV if sales were to drop by 500 units. (Enter your answer as a positive number. Do not round intermediate calculations and round your answer to 2 decimal places, e... 32.16.) NPV would (Click to select) by c. What is the sensitivity of OCF to changes in the variable cost figure? (A negative answer should be indicated by a minus sign. Do not round Intermediate calculations and round your answer to the nearest whole number, ... 32.)

Answer 1

Μ Ν P Q R S W X c) OCF = ((Selling Price per unit - variable cost per unit)*Quantity-Fixed cost)*(1-tax rate)+Depreciation tax rate At variable cost of $26 per unit OCF = ((56-26)*47000-845000)*(1-35%)+130000*35% OCF = 412750 Let's say the variable cost declined $1 to $25 per unit OCF = ((56-25)*47000-845000)*(1-35%)+130000*35% OCF = 443300 AOCF = 443300-412750 = 30550 AQ = 25-26--1 AOCF/4Q = 30550/-1 = -30550 With each unit of decline in the variable cost the OCF increases by 30550.

J K L M N 1 al Break even point = (Fixed cost+depreciation)/ Contribtion margin Depreciation = 650000 75 - 130000 Contribution margin = Revenue per unit - Variable per cost per unit So, break even point = (845000-130000)/(56-26) break even point - 32500 units 5 7 6-1) Base-case cash flows = [[|(Selling price - Variable cost) x Quantity - Fixed Costs] X (1-Tax rate)]. (Tax ratex depreciation) Base-case cash flows = [[|(56 -26) x 47000) - 845000) x (1-35/4)] + (357x 130000) Base-case cash flows 412750 Present value of cash flows - Cash flows x ((1-1/(1+r) thr) Present value of cash flows : 412750 x ((1-1/(1+10%)*5)/10%) Present value of cash flows : 1564647.2 NPV = (Present value of cash inflows) - (initial cost of project) NPV = 1564647-650000 NPV = 914647 19 -21 Final sales - Initial sales - 500 Final sales - 47000 - 500 Base-case cash flows = [[|(56 - 26) x 46500) - 845000) x (1-35/2)] + (357 x 130000) Base-case cash flows 403000 Present value of cash flows = 403000 x ((1-1/(1+10%)*5)/107) Present value of cash flows 1527687.07 NPV = (Present value of cash inflows) - (initial cost of project) NPV = 1527687.07 - 650000 = 877687.07 ANPV/AQ = (Final NPY - initial NPV)/(Final Sales - Initial Sales) ANPV/AQ = (877687.07 - 914647)/(46500 - 47000) ANPV/AQ- 73.92 36959.93 33 6-3) 34 decline in NPV = Initial NPV - Final NPV = 914647-877687.07 = NPV decline by 36959.93 35 36 C Please upload part C as a separate question; only + parts per question Please unload 37

J K L M N 1 al Break even point = (Fixed cost+depreciation)/ Contribtion margin Depreciation = 650000 75 - 130000 Contribution margin = Revenue per unit - Variable per cost per unit So, break even point = (845000-130000)/(56-26) break even point - 32500 units 5 7 6-1) Base-case cash flows = [[|(Selling price - Variable cost) x Quantity - Fixed Costs] X (1-Tax rate)]. (Tax ratex depreciation) Base-case cash flows = [[|(56 -26) x 47000) - 845000) x (1-35/4)] + (357x 130000) Base-case cash flows 412750 Present value of cash flows - Cash flows x ((1-1/(1+r) thr) Present value of cash flows : 412750 x ((1-1/(1+10%)*5)/10%) Present value of cash flows : 1564647.2 NPV = (Present value of cash inflows) - (initial cost of project) NPV = 1564647-650000 NPV = 914647 19 -21 Final sales - Initial sales - 500 Final sales - 47000 - 500 Base-case cash flows = [[|(56 - 26) x 46500) - 845000) x (1-35/2)] + (357 x 130000) Base-case cash flows 403000 Present value of cash flows = 403000 x ((1-1/(1+10%)*5)/107) Present value of cash flows 1527687.07 NPV = (Present value of cash inflows) - (initial cost of project) NPV = 1527687.07 - 650000 = 877687.07 ANPV/AQ = (Final NPY - initial NPV)/(Final Sales - Initial Sales) ANPV/AQ = (877687.07 - 914647)/(46500 - 47000) ANPV/AQ- 73.92 36959.93 33 6-3) 34 decline in NPV = Initial NPV - Final NPV = 914647-877687.07 = NPV decline by 36959.93 35 36 C Please upload part C as a separate question; only + parts per question Please unload 37