Question
In: Finance
Consider a four-year project with the following information: initial fixed asset investment = $600,000; straight-line depreciation...
Consider a four-year project with the following information: initial fixed asset investment = $600,000; straight-line depreciation to zero over the four-year life; zero salvage value; price = $35; variable costs = $28; fixed costs = $240,000; quantity sold = 90,000 units; tax rate = 25 percent. How sensitive is OCF to changes in quantity sold? (Do not round intermediate calculations and round your answer to 2 decimal places)
change in OCF/change in Q = ?
Solutions
Expert Solution
OFC = [(P - v)Q - FC](1 - T) + TD
OCF = [($35 - $28) × 90,000) - $240,000][1 - 0.25] + [($600,000/4) × 0.25] = $330,000
OFC when units are 90,001:
OCF = [($35 - $28) × 90,001) - $240,000][1 - 0.25] + [($600,000/4) × 0.25] = $330,005.25
Sensitivity = ($330,005.25 - $330,000) / (90,001 - 90,000)
Sensitivity = $5.25
jeff jeffy answered 2 years agoRelated Solutions
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