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How sensitive operating cash flow is to sales

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Question 1: You are the CFO of Baby Enterprises. You are considering a four-year project that requires an initial investment of $525,000 in a baby machinery that will be fully deprecated in a straight line over the 4 years. The machinery has no salvage value. You believe that you can sell 82,000 units at a price of $45 per unit. The units have a variable cost of $30 and fixed costs of $220,000 annually. The tax rate of Baby enterprise is 23% and your cost of capital is 8%. The CEO is concerned with the Sales departments projections and would like to know how sensitive Operating Cash Flow is to sales.

Reference no: EM132498495

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