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Calculate the accounting break-even point

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Reference no: EM13913892

We are evaluating a project that costs $1,120,000, has a ten-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 64,000 units per year. Price per unit is $50, variable cost per unit is $25, and fixed costs are $620,000 per year. The tax rate is 35 percent, and we require a return of 12 percent on this project.

a-1 Calculate the accounting break-even point. (Do not round intermediate calculations. 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?

b-1 Calculate the base-case cash flow and NPV.

b-2 What is the sensitivity of NPV to changes in the sales figure?

c. What is the sensitivity of OCF to changes in the variable cost figure?

Reference no: EM13913892

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