We are evaluating a project that costs $2,130,000, has a 8-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 90,600 units per year. Price per unit is $38.85, variable cost per unit is $23.95, and fixed costs are $860,000 per year. The tax rate is 25 percent, and we require a return of 11 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 450-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?