Question

We are evaluating a project that costs $1,830,000, 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 88,600 units per year. Price per unit is $38.25, variable cost per unit is $23.45, and fixed costs are $830,000 per year. The tax rate is 25 percent, and we require a return of 9 percent on this project.
a.	Calculate the base-case operating cash flow and NPV. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
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.)
c.	If there is a 400-unit decrease in projected sales, how much would the NPV change? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
d.	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, e.g., 32.)
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.)

a. Base-case operating cash flow Base-case NPV b. NPV sensitivity NPV change d. OCF sensitivity с. OCF change е.

Answer 1

fix -B3*-1* (1-25%) E27 В с Н К М N о P Depreciati Sale Variable Contribution Fixed Total cash Sales Operating Depreciation cash flows Investment flows 1 Year units PVIF@9% 1.000 S 0.917 $ |Таx@25% Present value price РВT РАT cost per unit costs on (1,830,000) (1,830,000) (1,830,000.00) 0 88,600 38.25 23.45 $ 88,600 38.25 23.45 $ 88,600 38. 25 23.45 $ 88,600 38. 25 23.45 $ 88,600 38. 25 23.45 $ 88,600 38.25 23.45 437,210 3 132,210 437,210 1 14.80 830,000 305,000 176,280 44,070 305,000 401,110.09 14.80 830,000 0.842 $ 0.772 $ 4 176,280 44,070 2 305,000 132,210 305,000 437,210 437,210 367,990.91 437,210 305,000 176,280 5 830,000 44,070 437,210 14.80 132,210 305,000 337,606.34 14.80 830,000 0.708 $ 0.650 S 0.596 $ 6 305,000 437,210 437,210 4 176,280 44,070 132,210 305,000 309,730.59 437,210 437,210 7 830,000 132,210 305,000 5 14.80 305,000 176,280 44,070 437,210 284,156.50 $ 305,000 176,280 44,070 6 14.80 830,000 132,210 305,000 437,210 260,694.04 9 $ 131,288.47 Base case NPV 10 TT Contribution Fixed Depreciati Total cash Sales Sale Variable Operating 12 Year units Depreciation cash flows Investment flows (1,830,000) PVIF@9% 1.000 $ 0.917 $ 0.842 $ |Tаx@25% Present value price РВBT PAT cost per unit Costs on (1,830,000.00) (1,830,000) 13 0 88,200 38.25 23.45 $ 2 88,200 $ 38.25 $ 23.45 $ 88,200 38.25 23.45 88,200 38.25 23.45 $ 88,200 38.25 23.45 88,200 38.25 23.45 $ 14 830,000 305,000 170,360 397,036.70 1 14.80 42,590 127,770 305,000 432,770 432,770 305,000 15 830,000 14.80 830,000 14.80 170,360 127,770 364,253.85 305,000 42,590 432,770 432,770 0.772 $ 0.708 $ 0.650 $ 0.596 $ 16 305,000 170,360 42,590 432,770 432,770 3 127,770 305,000 334,177.84 17 830,000 127,770 4 14.80 305,000 170,360 42,590 305,000 432,770 432,770 306,585.18 18 14.80 305,000 42,590 432,770 432,770 830,000 170,360 127,770 305,000 281,270.81 19 14.80 830,000 170,360 305,000 432,770 432,770 6 305,000 42,590 127,770 258,046.61 20 $111,370.99 NPV with decreased Qty 21 22 $ 437,210.00 $131,288.47 23 Base-case OCF 24 Base-case NPV 25 NPV Sensitivity 26 NPV change 49.794 -$19,917.48 -$66,450 $66,450.00 27 OCF Sensitivity 28 OCF change

*Please rate thumbs up