Reference no: EM131971039

Question: We are evaluating a project that costs $1,422,000, has a six-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 88,200 units per year. Price per unit is $34.85, variable cost per unit is $21.10, and fixed costs are $762,000 per year. The tax rate is 35 percent, and we require a return of 11 percent on this project.

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.)

a) Base-case operating cash flow $

b) NPV $

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) Sensitivity of NPV $

If there is a 500-unit decrease in projected sales, how much would the NPV drop? (Input your answer as a positive value. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

d) NPV drop $

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) Sensitivity of OCF $

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