We are evaluating a project that costs $965,000, has an seven-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 100,000 units per year. Price per unit is $36, variable cost per unit is $29, and fixed costs are $983,335 per year. The tax rate is 23 percent, and we require a 11 percent return on this project.

1a. Calculate the accounting break-even point.

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

2a. Calculate the best-case cash flow

2b. Calculate the NPV

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

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

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

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

**If you answer on paper please underline the answers. If you use excel please highlight the answers.