We are evaluating a project that costs $$867,000,$ has a life of $12$ years, and has no

salvage value. Assume that depreciation is straight$-$line to zero over the life of the

project. Sales are projected at $130,000$ units per year. Price per unit is $$37,$ variable cost

per unit is $$23,$ and fixed costs are $$874,803$ per year. The tax rate is $25$ percent, and we

require a return of $18$ percent on this project.

$1$a$.$ Calculate the accounting break$-$even point.

Break$-$even point

$1$b$.$ What is the degree of operating leverage at the accounting break$-$even point?

DOL $2$a$.$ Calculate the base$-$case cash flow.

Cash flow

$2$b$.$ Calculate the NPV$.2$c$.$ What is the sensitivity of NPV to changes in the quantity sold?

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$2$d$.$ What your answer tells you about a $500-$unit decrease in the quantity sold?

NPV drop $3$

points

$3$a$.$ What is the sensitivity of OCF to changes in the variable cost figure?

$3$b$.$ How much will OCF change if variable costs decrease by $$1?$

OCF