Sensitivity of ocf to changes in variable cost figure

Assignment Help Financial Management

Reference no: EM131998129

We are evaluating a project that costs $848,000, 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 62,000 units per year. Price per unit is $40, variable cost per unit is $20, and fixed costs are $625,000 per year. The tax rate is 35 percent, and we require a return of 20 percent on this project.

a-1 Calculate the accounting break-even point. (Do not round intermediate calculations. Round your answer to the nearest whole number, e.g., 32.) Break-even point units

a-2 What is the degree of operating leverage at the accounting break-even point? (Do not round intermediate calculations. Round your answer to 3 decimal places, e.g., 32.161.) DOL

b-1 Calculate the base-case cash flow and NPV. (Do not round intermediate calculations. Round your cash flow answer to the nearest whole number, e.g., 32. Round your NPV answer to 2 decimal places, e.g., 32.16.) Cash flow $ NPV $

b-2 What is the sensitivity of NPV to changes in the sales figure? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) ΔNPV/ΔQ $

c. What is the sensitivity of OCF to changes in the variable cost figure? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to the nearest whole number, e.g., 32. ) ΔOCF/ΔVC $

Reference no: EM131998129

Questions Cloud

Companies with similar risk characteristics : Companies with similar risk characteristics and 40% debt can borrow at 9.5%. Would the company lower its WACC if it increased its debt to 40%?

Calculation of cross rate between the us dollar and euro : Based on your calculation of a cross rate between the US dollar and Euro and comparing it with the market cross rate,

What is the firm cost of debt and cost of equity : What is the firm's market value weight of equity? What is the firm’s cost of equity? What is the firm’s cost of debt?

What is the firm market value weight of debt and equity : What is the firm's market value weight of equity? What is the firm’s cost of debt? What is the firm's market value weight of debt?

Sensitivity of ocf to changes in variable cost figure : Calculate the accounting break-even point. Calculate the base-case cash flow and NPV. What is the sensitivity of OCF to changes in the variable cost figure?

The historical average annual return for the asset : Suppose the historical average annual return for the asset was 6.7 percent and the standard deviation was 12.6 percent.

In a triangular arbitrage transaction : In a triangular arbitrage transaction:

Indifferent between accepting the project and not accepting : At what level of pretax cost savings would you be indifferent between accepting the project and not accepting it?

Book value of the equipment at the end of the project life : What is the book value of the equipment at the end of the project's life? What is the net cash flow for Year 4?

User Account

All Pages