Consider a three-year project with the following information: initial fixed asse
ID: 2644630 • Letter: C
Question
Consider a three-year project with the following information: initial fixed asset investment = $694,000; straight-line depreciation to zero over the four-year life; zero salvage value; price = $33.95; variable costs = $22.50; fixed costs = $209,500; quantity sold = 95,500 units; tax rate = 40 percent.
How sensitive is OCF to changes in quantity sold?
Consider a three-year project with the following information: initial fixed asset investment = $694,000; straight-line depreciation to zero over the four-year life; zero salvage value; price = $33.95; variable costs = $22.50; fixed costs = $209,500; quantity sold = 95,500 units; tax rate = 40 percent.
Explanation / Answer
We need to calculate the following income statement first:
The OCF of the company is:
OCF = EBIT + Depreciation - Taxes
$ 7,48,618
Sales $ 32,42,225 Variable cost $ 21,48,750 Depreciation $ 2,31,333 EBIT $ 8,62,142 Taxes @ 40% $ 3,44,857 Net Income $ 5,17,285