What is the degree of operating leverage in the base- case

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Reference no: EM133332032

Questions: Little Freak Inc. plans to do a project that requires an initial outlay of $210,000. This project has a life span of 6 years with a $7,500 salvage value. The method of calculating depreciation used in this project is the straight-line method. The company expects to sell 2,100 units per year at a price of $2,600 per unit sold. Little Freak Inc. also expects variable costs to be $1,100 per unit and fixed costs to be $56,000 per year. The required rate of return forthis project is 12.5% and 24% tax. Using the information above, calculate:

1. Upper and lower bounds for unit sales, prices, variable costs, and ?xed costs if the projected accuracy rate is 15%.

2. NPV in the base-case, best-case, and worst-case scenario of this project.

3. The NPV sensitivity in the base case if there is a change in variable costs (assuming VC changes to $1,600)!

4. Taking into account taxes, how much is the accounting break-even? Give your interpretation of the BEP value.

5. Ignoring taxes, what is the degree of operating leverage in the base- case scenario?

Reference no: EM133332032

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