Question
We are evaluating a project that costs $800,000, has an eight-year life, and has no salvage value. Assume that depreciation is straight-line to zero over
We are evaluating a project that costs $800,000, has an eight-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 60,000 units per year. Price per unit is $40, variable cost per unit is $20, and fixed costs are $800,000 per year. The tax rate is 35 percent, and we require a return of 10 percent on this project.
Accounting break-even point. = 45,000 units |
Cash flow | $ 295,000 |
NPV | $ 773,803.23 |
Sensitivity of OCF to changes in the variable cost figure = -$39,000 |
Based on all the information above, what is the sensitivity of NPV to changes in the sales figure & what is the degree of operating leverage at the accounting break-even point? (round to 2 decimal places)
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