Using straight-line depreciation over the project life

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Reference no: EM131849440

1. Consider a five-year project with the following information: initial fixed asset investment = $750,000; straight-line depreciation to zero over the five-year life; zero salvage value; price = $42/unit; variable costs = $21/unit; fixed costs = $390,000 per year; quantity sold = 100,000 units per year; tax rate = 34%. How sensitive is OCF to changes in quantity sold (i.e., the change in OCF given an increase of one unit sold in a year)?

$16.03

$15.28

$14.71

$13.86

$12.94

2. Michael M. has compiled this information related to a new project: Initial investment: $800,000; Fixed costs: $450,000; Variable costs: $12.00 per unit; Selling price: $37.00 per unit; Discount rate: 10 percent; Project life: 5 years; Tax rate: 34 percent. Fixed assets are depreciated using straight-line depreciation over the project's life. What is the financial break-even point?

26,875

27,102

27,493

27,863

29,140

Reference no: EM131849440

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