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# Break-Even & Sensitivity Analysis

We are evaluating a project that costs \$750,000, 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 159,000 units per year. Price per unit is \$41, variable cost per unit is \$28, and fixed costs are \$753,000 per year. The tax rate is 36 percent, and we require a 16 percent return on this project.

a. The accounting break-even point is units _______.

b. The base-case cash flow is \$_____ and NPV is \$_____ . The sensitivity of NPV to changes in the sales figure is \$ ________. If there is a 500-unit decrease in projected sales, we would expect the NPV to change by \$_______ .

c. The sensitivity of OCF to changes in the variable cost figure is \$_____ . Therefore, a \$1 decrease in estimated variable costs results in a \$_______ change in OCF.

#### Solution Preview

Please see the attachments. One attachment is a Word document and the other is an Excel file.

BREAK-EVEN & SENSITIVITY ANALYSIS
We are evaluating a project that costs \$750,000, has an eight-year life, and has no salvage value. Assume that depreciation is straight-line ...

#### Solution Summary

A break-even sensitivity analysis is given. The 500-unit decrease is projected sales is determined.

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