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Question:
Sensitivity Analysis and break even ( L01,3) we are evaluating a project that costs $924,000 has an eight-year life and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at $75,000 units per year. Price per unit is $46, variable cost per unit is $31 and fixed costs are $825,000 per year. The tax rate is 35 percent, and we require a 15 percent return on this project.
1. Calculate the accounting break even point. What is the degree of operating leverage at the accounting break even point?
2. Calculate the base case cash flow and npv. What is the sensitivity of NPV to changes in the sales figure? explain what your answer tell you about a 500 uit decrease in projected sales.
3. What is the3 sensitivity of OCF to changes in the variable cost figure/ explain what your answer tells you about a $1 decrease in estimated variable costs.
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