Consider a project with the following information: Initial fixed asset investment = $540,000; straight-line depreciation to...
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Consider a project with the following information: Initial fixed asset investment = $540,000; straight-line depreciation to zero over the 4-year life; zero salvage value; price = $52; variable costs = $33; fixed costs = $222,000; quantity sold = 112,000 units; tax rate = 21 percent. |
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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.) |
Homework Answers
| Sales | 5,824,000 |
| VC | (3,696,000) |
| FC | (222,000) |
| Depreciation | (135,000) |
| EBT | 1,771,000 |
| Tax (21%) | (371,910) |
| Net Income | 1,399,090 |
| OCF | 1,534,090 |
OCF = Net Income + Depreciation
Now, if quantity is increased by 112,001, then OCF changes to $1,534,105.01
=> Sensitivity of OCF to quantity sold = Change in OCF = $15.01
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