Lockhart Homebuilders is evaluating a project that costs $$\$ 724,000$$, 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 75,000 units per year. Price per unit is $$\$ 39$$, variable cost per unit is $$\$ 23$$, and fixed costs are $$\$ 850,000$$ per year. The tax rate is 35 percent, and Lockhart requires a 15 perceat 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 operating cash flow to changes in the variable cost figure? Explain what your answer tells you about a $$\$1$$ decrease in estimated variable costs.