course hero 9 - Sensitivity Analysis and Break Even We are...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Sensitivity Analysis and Break Even: We are evaluating a project that costs $936,000, has an eight-year life, and has no salvage value. Assume that the depreciation is straight-line to zero over the life of the project. Sales are projected at 100,000 units per year. Price per unit is $41, variable cost per unit is $26, and fixed costs are $850,000 per year. The tax rate is 35%, and we require a 15 percent return on this project. a.Calculate the accounting break-even point. What is the degree of operating leverage at the accounting break-even point? 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. c.What is the sensitivity of OCF to changes in the variable cost figure? Explain what your answer tells you about a $1 decrease in estimated variable costs. Accounting break even point = Fixed Cost + Depreciation / Contribution Margin per unit
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 04/23/2010 for the course BUS Business 1 taught by Professor B.mishra during the Spring '10 term at UC Riverside.

Page1 / 2

course hero 9 - Sensitivity Analysis and Break Even We are...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online