Question

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 $860,000 per year. The tax rate is 35 percent, and we require a return of 10 percent on this project. a. 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 33000 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 NPV sh flow $ 14030000 $ 877687.07 b-2What 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.) ΔNPVΙΔΟ $ 73.92 c. What is the sensitivity of OCF to changes in the variable cost figure? (Do not round intermediate calculations. A negative answer should be indicated by a minus sign.) AOCF/AVC $ 73.92

PLEASE HELP WITH C!!!

I CAN'T FIGURE IT OUT.

Thank you :)

Answer 1

Depreciation = $130,000 [ 650000/5] a) Break even point = [fixed cost + depreciation]/ (saleprice-variable cost) 33,000 Units |(860000+130000)/(56-26) b-1) OCF base = [(P - v)Q- FC](1 – T) + TD $403,000 %3D |(56-26)*(47000)-860000)*(0.65)+0.35*(130000) NPV = OCF x [PVIFA 10%,5Years] - initial cost $877,687.07 403000 x [PVIFA 10%,5Years ] - 650000 %3D

b-2) NPV when units = 47001 units OCF = [P – v)Q – FC](1 – T) + TD $403,020 |(56-26)*(47001)-860000)*(0.65)+0.35*(130000) NPV = OCF x [PVIFA 10%,5Years ] - initial cost $877,760.99 403020 x [PVIFA 10%,5Years ] - 650000 $73.92 ANPV/AQ = [ 877760.99-877687.07] C) NPV when variable cost decrease by $1 [P- v)Q- FC](1 – T) + TD $433,550 OCF base = |(56-25)*(47000)-860000)*(0.65)+0.35*(130000) -$30,550 [ (433550-403000)/(25-26) ] AOCF/AVC =