Question: What is the sensitivity of OCF to changes in the variable cost figure? We are evaluating a project that costs $856,800, has a nine-year life,

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

We are evaluating a project that costs $856,800, has a nine-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 90,000 units per year. Price per unit is $56, variable cost per unit is $40, and fixed costs are $770,000 per year. The tax rate is 25 percent, and we require a return of 12 percent on this project.

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