Question

Application Problem 03 A Saved Help Save & Exit Submit Check my work We are evaluating a project that costs $520,000, has a life of 6 years, and has n salvage value. Assume that depreciation is straight-line to zero over the life of th project. Sales are projected at 73,000 units per year. Price per unit is $45, variable co: per unit is $30, and fixed costs are $840,000 per year. The tax rate is 21 percent and w require a return of 15 percent on this project. 100 points Skipped eBook a. Calculate the accounting break-even point. (Do not round intermediat calculations and round your answer to the nearest whole number, e.g., 32.) b-1. Calculate the base-case cash flow and NPV. (Do not round int calculations and round your NPV answer to 2 decimal places, e.g., 32.16.) 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.) 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.) Print References I units Break-even point Cash flow NPV ΔNPV/ΔΟ AOCF/AVC

Answer 1

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12 e 9 W ? v . 1* 06-17 ENG 01-02-2070 24 1478 A A B C E F G H 457 458 depreciation = 520000/6 = 86666.67 459 ACCOUNTING BREAKEVEN POINT ACCOUNTING BREAKEVEN POINT ACCOUNTING BREAKEVEN POINT (FIXED COST + DEPRECIATION)/(SELLING PRICE - VARIABLE COST) (840000 + 86666.67)/ (45-30) 61777.78 UNITS OCF =( (sp-vc)(units) - fixed cost)(1-t) + t(depreciation) OCF =((45-30)(73000) - 840000)(1-0.21) + (0.21)*(86666.67) OCF = 219650.00 460 a 461 462 463 464 b-1 465 466 467 468 469 470 471 472 473 6-2 474 475 476 477 478 NPV = NPV = NPV = NPV = Present value of all cash flows - investment (219650 x PVIFA @15%,6 years) - 520000 (219650 X 3.784427) - 520000 311261.63 NOTE PVIFA @ 15%, 6 YEARS (1/r)*(1-(1/(1+r)^n)) (1/0.15)*(1-(1/(1+0.15)^6)) 3.7844827 To calculate sensitivity, we have to take one more sales units let us take sales units = 74000 OCF = (sp-vc)(units) - fixed cost)(1-t) + t(depreciation) OCF =( (45-30)(74000) - 840000)(1-0.21) + (0.21)*(86666.67) OCF = 231500.00 ... NPV NEW MACHINE yen dollar hege payback irr BEST WORST PRICEQUANTITY OCF ACC BE, CASH BE, FIN BE BASE CASE SENSITIVITY

? v . 1* 06-18 ENG 01-02-2070 24 1500 A B C D E F G H I J K O 479 480 481 482 NPV = NPV = NPV = NPV = Present value of all cash flows - investment (231500 x PVIFA @15%,6 years) - 520000 (231500 X 3.784427) - 520000 356107.75 483 The sensitivity of NPV to changes in units Echange in NPV/change in units The sensitivity of NPV to changes in units =(356107.75-311261.63)/174000-73000) = 44.846 484 485 486 ANSWER 487 488 489 C 490 491 492 To calculate sensitivity, we have to take one VARIABLE COST let us take variable cost = 31 493 OCF = (sp-vc)(units) - fixed cost)(1-t) + t(depreciation) OCF =((45-31)(73000) - 840000)(1-0.21) + (0.21)*(86666.67) OCF = 161980.00 494 495 496 497 498 499 500 The sensitivity of OCF to changes in VARIABLE COST =change in OCF/change in VARIABLE COST The sensitivity of OCF to changes in VARIABLE COST =(161980-219650)/(31-30) = -57670 ... NPV NEW MACHINE yen dollar hege payback irr BEST WORST PRICEQUANTITY OCF ACC BE, CASH BE, FIN BE BASE CASE SENSITIVITY