How much can your project withstand?
Test uncertain forecasts, find break-even sales and see how fixed costs and future choices change a project's value. Solve has ten questions with editable numbers and worked answers.
Start with the project’s pre-tax profit
| Annual item | Amount |
|---|---|
| Revenue | $250,000 |
| Variable cost | $150,000 |
| Cash fixed cost | $20,000 |
| Depreciation | $50,000 |
| Pre-tax profit | $30,000 |
Start with the project’s pre-tax profit
Build the base-case cash flow and NPV
Cloudthimble Works is fictional. Investment today is $100,000, life 2 years, annual sales 5,000 units, price $50 per unit, variable cost $30 per unit and annual fixed cash cost $20,000 excluding depreciation. Use straight-line depreciation, no salvage or working capital, and equal end-of-year operating cash flows. The example tax rate is 25% of pre-tax profit; losses shelter other firm income, so tax can be negative. The project discount rate is 25%, compounded annually. Carry full precision between steps and round displayed money to whole dollars; quantities to two decimals unless whole units are requested.
- Find depreciation, pre-tax profit, tax, net profit and operating cash flow.
- Calculate NPV.
- Should the firm accept the project under these forecasts?
Exam coming up and break-even analysis still feels like guesswork?
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