We Are Evaluating a Project That Costs $1

question 34

Multiple Choice

We are evaluating a project that costs $1.68 million, has a 5-year life, and has no salvage value. Assume depreciation is straight-line to zero over the life of the project. Sales are projected at 82,000 units per year. Price per unit is $43.29, variable cost per unit is $22.18, and fixed costs are $623,000 per year. The tax rate is 34 percent, and we require a 10 percent return on this project. What is the sensitivity of NPV to a 100 unit change in the sales figure?

• A) $3,998.40
• B) $4,609.18
• C) $4,897.20
• D) $5,281.55
• E) $5,557.12

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