Consider a three-year project with the following information: initial fixed asse
ID: 2644635 • 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
Operating cash flow (OCF) is the amount of operating net income after adding depreciation on fixed asset.
Net income = [{(Selling price