Sensitivity analysis-variable cost figure

Assignment Help Financial Management

Reference no: EM131497086

Sensitivity Analysis. We are evaluating a project that costs $1,390,000, 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 110,000 units per year. Price per unit is $36, variable cost per unit is $22, and fixed costs are $975,000 per year. The tax rate is 35 percent, and we require a 15 percent return on this project.

a. Calculate the base-case cash flow and NPV. What is the sensitivity of NPV to changes in the sales figure? Explain what your answer tells you about a 500-unit decrease in projected sales.

b. What is the sensitivity of OCF to changes in the Sensitivity Analysis.? Explain what your answer tells you about a $1 decrease in estimated variable costs.

Reference no: EM131497086

Questions Cloud

Experiencing rapid growth-what is stock price : Navel County Choppers Inc. is experiencing rapid growth. If the dividend per share just paid was $1.69, what is the stock price?

Should elrond buy and install machine press : Project Analysis. Elrond’s Machine Shop is considering a four-year project to improve its production efficiency. should Elrond buy and install machine press?

What is the current dollar value of this contribution : What is the current dollar value of this contribution if the discount rate is 7%?

Company historical average pe as benchmark : Using the company’s historical average PE as a benchmark, what is the target stock price one year from today

Sensitivity analysis-variable cost figure : We are evaluating project that costs $1,390,000, has six-year life and has no salvage value. What is sensitivity of OCF to changes in variable cost figure?

What is the holding period yield on the two year bond : What is the holding period yield on the two year bond assuming it has a face value of $100?

Managing intellectual capital : Here are three issues that come up in managing intellectual capital. In what specific ways could corporate culture drive a firm's market value?

What amount of time will be required to pay off the mortgage : What amount of time will be required to pay off the mortgage if you continue to make the original monthly payments?

Inspired by the events in the montreal cement market : Inspired by the events in the Montreal cement market in 1966. Be sure to explain your reasoning in both game-theoretic and economic terms.

User Account

All Pages