1. Sensitivity Analysis and Break-Even Point We are evaluating a project that costs $772,000, 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 96,000 units per year. Price per unit is $39, variable cost per unit is $21, and fixed costs are $1.35 million per year. The tax rate is 21 percent, and we require a return of 15 percent on this project.

a. Calculate the accounting break-even point.

b. Calculate the base-case cash flow and NPV. What is the sensitivity of NPV to changes in the sales figure? Explain what your answer tells you about a 500-unit decrease in projected sales.

c. What is the sensitivity of OCF to changes in the variable cost figure? Explain what your answer tells you about a $1 decrease in estimated variable costs.