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(Solved): We are evaluating a project that costs $588,000; has an eight-year life and has no salvage value. A ...



We are evaluating a project that costs $588,000; 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 70,000 units per year. Price per unit is $36, variable cost per unit is $20, and fixed costs are $695,000 per year. The tax rate is 35 percent, and we require a return of 15 percent on this project. Part a: Calculate the accounting break even. Part b: 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? Part c: What is the sensitivity of OFC to changes in the variable cost figure? Explain what your answer tells you about a $1 decrease in variables costs.



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