Consider a three-year project with the following information: Initial fixed asset investment = $840,000; straight-line depreciation to

Question:

Consider a three-year project with the following information: Initial fixed asset investment = $840,000; straight-line depreciation to zero over the five-year life; zero salvage value; price = $32.85; variable costs = $21.95; fixed costs = $204,000; quantity sold = 90,000 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...