Consider a four-year project with the following information: initial fixed asset investment = $375,000; straight-line depreciation to zero over the four-year life; zero salvage value; price = $56; variable costs = $23; fixed costs = $195,000; quantity sold = 84,000 units; tax rate = 34%. How sensitive is OCF to changes in quantity sold? (Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) (Do not forget to include + or – sign)
Senstivity of OCF to changes in quantity :
Below is the table showing calculation of OCF when 84000 units are sold
OCF is 1,732,695
Let us assume units increased to 85000 units
OCF is 1,754,475
Sentivity is change in OCF / Change in Units
= (1754475 - 1,732,695) / 1000
= 21780 / 1000
= +21.75
or in dollar terms = 21,780
Consider a four-year project with the following information: initial fixed asset investment = $375,000; straight-line depreciation...
Consider a four-year project with the following information: initial fixed asset investment = $375,000; straight-line depreciation to zero over the four-year life; zero salvage value; price = $56; variable costs = $23; fixed costs = $195,000; quantity sold = 84,000 units; tax rate = 34%. How sensitive is OCF to changes in quantity sold? (Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) (Do not forget to include + or...
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Question#2 - Consider a four-year project with the following information: initial fixed asset investment = $575,000; straight-line depreciation to zero over the four-year life; zero salvage value; price = $36; variable costs = $17; fixed costs = $175,000; quantity sold = 84,000 units; tax rate = 34%. How sensitive is OCF to changes in quantity sold? (Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) (Do not forget to include...
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