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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 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.

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

a-2. What is the degree of operating leverage at the accounting break-even point?

b-1. Calculate the base-case cash flow and NPV.

b-2. What is the sensitivity of NPV to changes in the sales figure?

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

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Category:- Basic Finance
Reference No.:- M92809399

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