Consider a three-year project with the following information: initial fixed asse
ID: 2711909 • Letter: C
Question
Consider a three-year project with the following information: initial fixed asset investment = $674,000; straight-line depreciation to zero over the four-year life; zero salvage value; price = $32.95; variable costs = $22.00; fixed costs = $204,500; quantity sold = 90,500 units; tax rate = 40 percent.
How sensitive is OCF to changes in quantity sold? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)
*Please show all work*
Consider a three-year project with the following information: initial fixed asset investment = $674,000; straight-line depreciation to zero over the four-year life; zero salvage value; price = $32.95; variable costs = $22.00; fixed costs = $204,500; quantity sold = 90,500 units; tax rate = 40 percent.
Explanation / Answer
OCF/Q = (543006.8 - 536432)/(91000 - 90000) = 6.5748
QTY 91000 Sales= price*qty 2999178 -selling expenses Variable cost*qty -2002000 -fixed cost -204500 -depreciation asset investment/4 -168500 =pretax OCF 624178 -taxes =pretax OCF*(1-tax rate) 374506.8 +depreciation 168500 =OCF 543006.8