Chapter 11 exercises - 1 We are evaluating a project that costs \$896,000 has an eight-year life and has no salvage value Assume that depreciation is

# Chapter 11 exercises - 1 We are evaluating a project that...

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1. We are evaluating a project that costs \$896,000, 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 100,000 units per year. Price per unit is \$38, variable cost per unit is \$25, and fixed costs are \$900,000 per year. The tax rate is 35 percent, and we require a 15 percent return on this project. a. Calculate 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

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