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We are evaluating a project that costs $827,000, has a life of 14 years, and has no salvage value. Assume that depreciation is straight-line

 

We are evaluating a project that costs $827,000, has a life of 14 years, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 123,000 units per year. Price per unit is $40, variable cost per unit is $23, and fixed costs are $831,962 per year. The tax rate is 24 percent, and we require a return of 18 percent on this project. Calculate: A. The accounting break-even point. B. The degree of operating leverage at the accounting break-even point C. The base-case cash flow D. The NPV E. The sensitivity of NPV to changes in the quantity sold F. What your answer tells you about a 500-unit decrease in the quantity sold G. What is the sensitivity of OCF to changes in the variable cost figure? H. How much will OCF change if variable costs decrease by $1

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