Question

Consider a three-year project with the following information: initial fixed asset investment = $680,000; straight-line depreciation to zero over the 4-year life; zero salvage value; price = $38.91; variable costs = $27.95; fixed costs = $314,000; quantity sold = 81,000 units; tax rate = 23 percent. How sensitive is OCF to changes in quantity sold? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Answer 1

OCF sensitivity to change in units:

= (Price per unit-Cost per unit)×(1-Tax rate)

= ($38.91-$27.95)×(1-23%)

= $8.44

Hence, OCF sensitivity is $8.44

Please rate thumbs up