We are evaluating a project that costs $970,000, has an 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 154,000 units per year. Price per unit is $36, variable cost per unit is $24, and fixed costs are $985,520 per year. The tax rate is 31 percent, and we require a 16 percent return on this project.

Requirement 1:

(a) Calculate the accounting break-even point. (Do not round your intermediate calculations.)

(Click to select)

(b)

What is the degree of operating leverage at the accounting break-even point? (Do not round your intermediate calculations.)

(Click to select)

Requirement 2:

(a) Calculate the base-case cash flow. (Do not round your intermediate calculations.)

(Click to select)

(b) Calculate the NPV. (Do not round your intermediate calculations.)

(Click to select)

(c)

What is the sensitivity of NPV to changes in the sales figure? (Do not round your intermediate calculations.)

(Click to select)

(d)

What your answer tells you about a 500-unit decrease in projected sales? (Do not round your intermediate calculations.)

(Click to select)

Requirement 3:

(a)

What is the sensitivity of OCF to changes in the variable cost figure? (Do not round your intermediate calculations.)

(Click to select)

(b)

What your answer tells you about a $1 decrease in estimated variable costs? (Do not round your intermediate calculations.)

(Click to select)