We are evaluating a project that costs $843,666, has an eight-year life, and hasno salvage value. Assume that depreciation is straight-line to zero over the life ofthe project. Sales are projected at 56,852 units per year. Price per unit is $35,variable cost per unit is $21, and fixed costs are $415,493 per year. The tax rateis 35%, and we require a return of 20% on this project.In dollar terms, what is the sensitivity of NPV to changes in the units soldprojection? (Round answer to 2 decimal places. Do not round intermediatecalculations)Topic: Sensitivity Analysis

Answers: Here's the step-by-step calculation:1. Calculate the annual cash flow for each scenario:-…

Answered: We are evaluating a project that costs…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 3P

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Roberts Company is considering an investment in equipment that is capable of producing more efficiently than the current technology. The outlay required is 2,293,200. The equipment is expected to last five years and will have no salvage value. The expected cash flows associated with the project are as follows: Required: 1. Compute the projects payback period. 2. Compute the projects accounting rate of return. 3. Compute the projects net present value, assuming a required rate of return of 10 percent. 4. Compute the projects internal rate of return.
Your division is considering two investment projects, each of which requires an up-front expenditure of 25 million. You estimate that the cost of capital is 10% and that the investments will produce the following after-tax cash flows (in millions of dollars): a. What is the regular payback period for each of the projects? b. What is the discounted payback period for each of the projects? c. If the two projects are independent and the cost of capital is 10%, which project or projects should the firm undertake? d. If the two projects are mutually exclusive and the cost of capital is 5%, which project should the firm undertake? e. If the two projects are mutually exclusive and the cost of capital is 15%, which project should the firm undertake? f. What is the crossover rate? g. If the cost of capital is 10%, what is the modified IRR (MIRR) of each project?
We are evaluating a project that costs RM604,000, has an 8-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 55,000 units per year. Price per unit is RM36, variable cost per unit is RM17, and fixed costs are RM685,000 per year. The tax rate is 21 percent and we require a return of 15 percent on this project. (i) Calculate the base-case cash flow and NPV., (ii) Assume the sales figure increases to 56,000 units per year, calculate the sensitivity of NPV to changes in the sales figure?
We are evaluating a project that costs $1,080,000, has a life of 10 years, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 52,000 units per year. Price per unit is $50, variable cost per unit is $30, and fixed costs are $730,000 per year. The tax rate is 25 percent, and we require a return of 15 percent on this project. b-1. Calculate the accounting break-even point. (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) Calculate the base-case cash flow and NPV. (Do not round intermediate 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.) C. 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…
We are evaluating a project that costs $820,000, has a life of 7 years, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 159,000 units per year. Price per unit is $43, variable cost per unit is $28, and fixed costs are $833,120 per year. The tax rate is 25 percent, and we require a return of 14 percent on this project. 1a. Calculate the accounting break-even point. Break-even point 1b. What is the degree of operating leverage at the accounting break-even point? DOL 2a. Calculate the base-case cash flow. Cash flow
We are evaluating a project that costs $845,000, 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 51,000 units per year. Price per unit is $53, variable cost per unit is $27, and fixed costs are $950,000 per year. The tax rate is 22%, and we require a return of 12% on this project. a. Calculate the accounting break-even point. b. Calculate the base-case operating cash flow and NPV. c. Suppose the projections given for price per unit, quantity, variable costs per unit, and fixed costs are all accurate to within ±10%. Calculate the best-case and worst-case NPV figures.
We are evaluating a project that costs $853,000, has a life of 11 years, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 106,000 units per year. Price per unit is $39, variable cost per unit is $24, and fixed costs are $856,412 per year. The tax rate is 22 percent, and we require a return of 15 percent on this project. Calculate the accounting break-even point. What is the degree of operating leverage at the accounting break-even point? Calculate the base-case cash flow. Calculate the NPV.
We are evaluating a project that costs $845,000, 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 51,000 units per year. Price per unit is $53, variable cost per unit is $27, and fixed costs are $950,000 per year. The tax rate is 22 percent, and we require a return of 10 percent on this project. Calculate the accounting break-even point. What is the degree of operating leverage at the accounting break-even point? Calculate the base-case cash flow and NPV. What is the sensitivity of NPV to changes in the quantity sold? What is the sensitivity of OCF to changes in the variable cost figure? Give typing answer with explanation and conclusion
We are evaluating a project that costs $845,000, 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 51,000 units per year. Price per unit is $53, variable cost per unit is $27, and fixed costs are $950,000 per year. The tax rate is 22 percent, and we require a return of 10 percent on this project. Suppose the projections given for price, quantity, variable costs, and fixed costs are all accurate to within ±10 percent. Calculate the best-case and worst-case NPV figures. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) Best case Worst case
We are evaluating a project that costs $2,100,000, has a 7-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 98,600 units per year. Price per unit is $37.79, variable cost per unit is $23.90, and fixed costs are $857,000 per year. The tax rate is 24 percent and we require a return of 12 percent on this project. Suppose the projections given for price, quantity, variable costs, and fixed costs are all accurate to within +10 percent. Calculate the best-case and worst-case NPV figures. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) Best-case NPV Worst-case NP
We are evaluating a project that costs $845,000, 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 51,000 units per year. Price per unit is $53, variable cost per unit is $27, and fixed costs are $950,000 per year. The tax rate is 22 percent, and we require a return of 10 percent on this project. a-1. Calculate the accounting break-even point. (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) a-2. What is the degree of operating leverage at the accounting break-even point? (Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.) 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.) b-2. What is the sensitivity of NPV to changes in the…
We are evaluating a project that costs $2,190,000, has a 8-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 91,200 units per year. Price per unit is $38.97, variable cost per unit is $24.05, and fixed costs are $866,000 per year. The tax rate is 22 percent and we require a return of 11 percent on this project. Suppose the projections given for price, quantity, variable costs, and fixed costs are all accurate to within ±10 percent. Calculate the best-case and worst-case NPV figures. Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. Best-case NPV $ 1,112,906.00 Worst-case NPV $ -2,864,440.00

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