We are evaluating a project that costs $1,446,000, has a six-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 88,600 units per year. Price per unit is $35.05, variable cost per unit is $21.30, and fixed costs are $766,000 per year. The tax rate is 30 percent, and we require a return of 11 percent on this project.

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

2) What is the sensitivity of NPV to changes in the sales figure?

3) If there is a 500-unit decrease in projected sales, how much would the NPV drop?

4) What is the sensitivity of OCF to changes in the variable cost figure?

5) If there is $1 decrease in estimated variable costs, how much would the increase in OCF be?