Consider a four-year project with the following information: initial fixed asset investment = $420,000; straight-line depreciation to

Question:

Consider a four-year project with the following information: initial fixed asset investment = $420,000; straight-line depreciation to zero over the four-year life; zero salvage value; price = $25; variable costs = $16; fixed costs = $180,000; quantity sold = 75,000 units; tax rate = 34 percent. How sensitive is OCF to changes in quantity sold?

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...