We are evaluating a project that costs $2,040,000, has a 7-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 89,700 units per year. Price per unit is $38.67, variable cost per unit is $23.80, and fixed costs are $851,000 per year. The tax rate is 22 percent, and we require a return of 10 percent on this project.

a. Calculate the base-case operating cash flow and NPV.

b. What is the sensitivity of NPV to changes in the sales figure?

c. If there is a 400-unit decrease in projected sales, how much would the NPV change?

d. What is the sensitivity of OCF to changes in the variable cost figure?

e. If there is a $1 decrease in estimated variable costs, how much would the OCF change?