Reference no: EM132595057
We are evaluating a project that costs $500,000, 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 50,000 units per year. Price per unit is $50, variable cost per unit is $25, and fixed costs are $600,000 per year. The tax rate is 35 percent, and we require a return of 12 percent on this project.
a. Calculate the accounting break-even point. (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)
Break-even point 26,500 units
b-1 Calculate the base-case cash flow and NPV. (Do not round intermediate calculations and round your NPV answer to 2 decimal places, e.g., 32.16.)
Cash flow$ 444375
NPV$ 1707494
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.)
ΔNPV/ΔQ $ _________________
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.g., 32.16.)
NPV would decrease by $ _______________
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