Consider a three-year project with the following information: initial fixed asse
ID: 2721879 • Letter: C
Question
Consider a three-year project with the following information: initial fixed asset investment = $850,000; straight-line depreciation to zero over the five-year life; zero salvage value; price = $33.25; variable costs = $22.15; fixed costs = $206,000; quantity sold = 92,000 units; tax rate = 34 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 93,000 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).)
Consider a three-year project with the following information: initial fixed asset investment = $850,000; straight-line depreciation to zero over the five-year life; zero salvage value; price = $33.25; variable costs = $22.15; fixed costs = $206,000; quantity sold = 92,000 units; tax rate = 34 percent.
Explanation / Answer
OCF when the quantity sold= 92000*33.25=305900-2037800(VC 92000*22.15)=1021200-206000(FC)=815200-170000(DEP 850000/5) =645200-219300(Tax34%)=425900+170000(DEP)=595,000
OCF when quantity 93000 units= 602,000
the senstivity for 1000 units change = 602000-595000=$7000