Consider a three-year project with the following information; initial fixed asset investment = $730,000; straight-line depreciation to
Question:
Consider a three-year project with the following information; initial fixed asset investment = $730,000; straight-line depreciation to zero over the five year life; zero salvage value; price = $31.75; variable costs = $19.50; fixed costs = $185,000; quantity sold = 80,000 units; tax rate = 34 percent. How sensitive is OCF to changes in quantity sold?
Salvage ValueSalvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...
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Using the tax shield approach the OCF at 100000 units will be ...View the full answer
Essentials Of Corporate Finance
ISBN: 9780073405131
6th Edition
Authors: Stephen A. Ross, Randolph Westerfield, Bradford D. Jordan
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In accounting terms, depreciation is defined as the reduction of the recorded cost of a fixed asset in a systematic manner until the value of the asset becomes zero or negligible. An example of fixed assets are buildings, furniture, office equipment, machinery, etc. The land is the only exception that cannot be depreciated as the value of land appreciates with time. Depreciation allows a portion of the cost of a fixed asset to be the revenue generated by the fixed asset. This is mandatory under the matching principle as revenues are recorded with their associated expenses in the accounting period when the asset is in use. This helps in getting a complete picture of the revenue
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