We are evaluating a project that costs $768,000, has a shelf
life of 6 years, and has no salvage value. Assume that depreciation
is straight-line to zero over the life of the project. Sales are
projected at 104,000 units per year. Price per unit is $36,
variable cost per unit is $29, and fixed costs are $777,984 per
year. The tax rate is 22 percent, and we require a return of 12
percent on this project.
1a.) Calculate the accounting break-even point.
1b.) What is the degree of operating leverage at the accounting
break-even point?
2a.) Calculate the base-case cash flow.
2b.) Calculate the NPV.