Consider a three-year project with the following information: initial fixed asse
ID: 2767586 • Letter: C
Question
Consider a three-year project with the following information: initial fixed asset investment = $682,000; straight-line depreciation to zero over the four-year life; zero salvage value; price = $33.35; variable costs = $22.20; fixed costs = $206,500; quantity sold = 92,500 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).)
Consider a three-year project with the following information: initial fixed asset investment = $682,000; straight-line depreciation to zero over the four-year life; zero salvage value; price = $33.35; variable costs = $22.20; fixed costs = $206,500; quantity sold = 92,500 units; tax rate = 40 percent.
Explanation / Answer
Selling Price a $33.35 $33.35 Variable Cost b $22.20 $22.20 Contribution per unit c = a-b $11.15 $11.15 # Units d 92500 101750 Total Contribution e=c*d $1,031,375.00 $1,134,512.50 Fixed Costs f $206,500.00 $206,500.00 Depreciation (682000/4) g $170,500.00 $170,500.00 Profit Before tax h=e-f-g $654,375.00 $757,512.50 Taxes at 40% i = h*40% $261,750.00 $303,005.00 Profit after Tax j=h-i $392,625.00 $454,507.50 Depreciation k $170,500.00 $170,500.00 Operating Cashflow l = j+k $563,125.00 $625,007.50 In Numbers In Percent Change in Cashflow $61,882.50 10.99% Change in Quantity 9250 10.00% Delta OCF / Delta Qty = 10.99% / 10% = 1.099