Sensitivity of ocf to changes in the variable cost figure

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Reference no: EM131990100

We are evaluating a project that costs $520,000, has a five-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 73,000 units per year. Price per unit is $50, variable cost per unit is $30, and fixed costs are $832,000 per year. The tax rate is 35 percent, and we require a return of 10 percent on this project.

a. Calculate the break even point.

b-1. Calculate the base case cash flow and NPV rounding to 2 decimal places.

b-2. What is the sensitivity of NPV to changes in the sales figure? (NPV/Q)

b-3. Calculate the change in NPV if sales were to drop by 500 units.

c. What is the sensitivity of OCF to changes in the variable cost figure? (OCF/VC)

Reference no: EM131990100

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