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We are evaluating a project that costs $864,000. 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 71,000 units per year. Price per unit is $49, a variable cost per unit is $33, and fixed costs are $765,000 per year. The tax rate is 35 percent, and we require a return of 10 percent on project.
Calculate the accounting break-even point
Calculate the base case cash flow and NPV. What is the sensitivity of NPV to changes in the sales figure?
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.
In the previous problem. 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.
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Scanlin, Inc., is considering a project that will result in initial aftertax cash savings of $1.73 million at the end of the first year, and these savings will grow at a rate of 3 percent per year indefinitely. The firm has a target debt−equity ratio..
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Hart Enterprises recently paid a dividend, D0, of $3.25. It expects to have nonconstant growth of 14% for 2 years followed by a constant rate of 4% thereafter. The firm's required return is 17%. How far away is the horizon date?What is the firm's hor..
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Assume your utility has the form U: E(r) - ½(A)σ 2 ; at what level of risk aversion would be indifferent between holding Yahoo or Treasury notes? Suppose your risk aversion equals 4, you form a portfolio of 30% Yahoo and 70% Treasury notes, is this p..
Dr. Bueller had recently overheard a few of his colleagues discussing possible investments in the international marketplace. Wanting to explore all of his potential investment options, he has asked you to explain the various aspects of investing i..
The capital asset pricing model:
Your firm has a $250,000 bond issue outstanding. These bonds have a 7% coupon, pay interest annually, and have a current market price equal to 103% of face value. What is the amount of the annual interest tax shield given a tax rate of 35%?
Stan elects to receive his retirement benefit over 10 years at the rate of 2000 per month beginning one month from now. The monthly benefit increases by 5% each year. At an annual nominal interest rate of 6% compounded monthly, calculate the present ..
Massachusetts Burger is a national chain that, because of its success, has decided to expand. MassBurger, as it’s also known, is currently unlevered and has assets valued at 2000000. What must the percentage fall in the assets be before all the equit..
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