Question
We are evaluating a project that costs $1,675,000, has a six-year life, and has no salvage value. Assume that depreciation is straight-line to zero over
We are evaluating a project that costs $1,675,000, has a six-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 91,000 units per year. Price per unit is $35.95, variable cost per unit is $21.40, and fixed costs are $775,000 per year. The tax rate is 35 percent, and we require a return of 11 percent on this project. What is the sensitivity of OCF to changes in the variable cost figure? Sensitivity of OCF ------> $................. If there is a $1 decrease in estimated variable costs, how much would the increase in OCF be? Increase in OCF ------> $................. |
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