Question
In: Finance
Consider a four-year project with the following information: initial fixed asset investment = $570,000; straight-line depreciation...
Consider a four-year project with the following information: initial fixed asset investment = $570,000; straight-line depreciation to zero over the four-year life; zero salvage value; price = $30; variable costs = $22; fixed costs = $210,000; quantity sold = 87,000 units; tax rate = 22 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.)
Solutions
Expert Solution
OFC = [(P - v)Q - FC](1 - T) + TD
OCF = [($30 - $22) × 87,000) - $210,000][1 - 0.22] + [($570,000/4) × 0.22] = $410,430
OFC when units are 87,001:
OCF = [($30 - $22) × 87,001) - $210,000][1 - 0.22] + [($570,000/4) × 0.22] = $410,436.24
Sensitivity = ($410,436.24 - $410,430) / (87,001 - 87,000)
Sensitivity = $6.24
jeff jeffy answered 2 years agoRelated Solutions
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