Consider a three-year project with the following information: initial fixed asse
ID: 2640022 • Letter: C
Question
Consider a three-year project with the following information: initial fixed asset investment = $706,000; straight-line depreciation to zero over the four-year life; zero salvage value; price = $34.55; variable costs = $22.80; fixed costs = $212,500; quantity sold = 98,500 units; tax rate = 40 percent.
What is the OCF at the base-case quantity sold? (Do not round intermediate calculations. Round your answer to the nearest whole number (e.g., 32).)
What is the OCF at 99,500 units sold? (Do not round intermediate calculations. Round your answer to the nearest whole number (e.g., 32).)
How sensitive is OCF to changes in quantity sold? (Do not round intermediate calculations. Round your answer as directed but do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)
Required:What is the OCF at the base-case quantity sold? (Do not round intermediate calculations. Round your answer to the nearest whole number (e.g., 32).)
Explanation / Answer
Calculation of Operating Cash Flow at the base case quantity sold:
Calculation of Operating Cash Flow at 99,500 Units sold:
Sensitiveness of OCF to Changes in Quantity Sold:
Change in OCF / Change in Quantity Sold
7,050 / 1,000 = 7.05
Amount($) Per Unit Total($) Sales 34.55 3,403,175 - VC 22.80 2,245,800 - Fixed Cost 212,500 - Depreciation 176,500 Net Income 768,375 - Taxes 307,350 Income After Tax 461,025 + Depreciation 176,500 Operating Cash Flow 637,525