Question: Consider a five-year project with the following information: initial fixed asset investment = $1,060,000; straight-line depreciation to zero over the ten-year life; zero salvage value;

Consider a five-year project with the following information: initial fixed asset investment = $1,060,000; straight-line depreciation to zero over the ten-year life; zero salvage value; price = $42.50/unit; variable costs = $19.70/unit; fixed costs = $412,000 per year; quantity sold = 200,000 units per year; tax rate = 25%. How sensitive is OCF to changes in quantity sold (i.e., what is the change in OCF given an increase of one unit sold in a year)?

Step by Step Solution

★★★★★

3.52 Rating (149 Votes )

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock

To calculate the sensitivity of Operating Cash Flow OCF to changes in quantity sold we can follow these steps 1 Calculate the OCF for the base case sc... View full answer

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

ABC Company has the following mutually exclusive projects. If the company's payback period is 2 years, which of these projects should be chosen? Project A Year 0 -19,500 1 11,500 2 8,750 3 2,500...

Weighted Average Method, Single Department Analysis, Uniform Costs Hatch Company produces a product that passes through three processes: Fabrication, Assembly, and Finishing. All manufacturing costs...

In Problem 26, suppose youre confident about your own projections, but youre a little unsure about Detroits actual machine screw requirement. What is the sensitivity of the project OCF to changes in...

Sensitivity Analysis Consider a four-year project with the following information: initial fixed asset investment $420,000; straight-line depreciation to zero over the four-year life; zero salvage...

Consider a four-year project with the following information initial fixed asset investment = $550,000, straight-line depreciation to zero over the four-year lifezero salvage value price = $26,...

Consider a 6-year project with the following information: initial fixed asset investment = $460,000; straight-line depreciation to zero over the 6-year life; salvage value = $90,000; initial NWC =...

Consider a four-year project with the following information: initial fixed asset investment$470,000; straight-line depreciation to zero over the four-year life; zero salvage value: price = $30;...

QUESTION 9 Houston Corporation is drilling an oil well. The drilling rig costs $720 today, and in one year the well is either a success or a failure The outcomes are equally likely. The discount rate...

Please help with #1-2 1. Olin Transmissions, Inc., has the following estimates for its new gear assembly project: price = $12 per unit; variable costs = $1.80 per unit; fixed costs = $375,000;...

Texas, Inc. is drilling an oil well. The drilling rig costs $750 today, and in one year the well is either a success or a failure. The outcomes are equally likely. The discount rate is 12%. The PV of...

Chapter 7 Practice 1 Answer the following questions by showing all necessary work and using complete sentences. 1.) After conducting a survey of his students, a professor reported that "There appears...

Research another country's elder care system and address beliefs, spiritual issues, and cultural issues that are also factors in the delivery and provision of health care to this population.

A Drive - In Restaurant is considering a new marketing idea. At this restaurant, diners have the choice of dining inside or staying in their cars to eat. To serve those dining in their cars, carhops...

In Integrative Case 10.1, we projected financial statements for Starbucks for Years +1 through +5. In this portion of the Starbucks Integrative Case, we use the projected financial statements from...

Imagine that the Mini-Dow Average (MDA) is based on the closing prices of 5 stocks. The divisor used in the calculation of the MDA is currently 0.765. The closing prices for each of the 5 stocks in...

The partnership of Matteson, Richton, and OToole has existed for a number of years. At the present time the partners have the following capital balances and profit and loss sharing percentages:...

Chris LeBlanc estimates that if he does 5 hours of research using data that will cost $75, there is a good chance that he can improve his expected return on a $10,000, 1-year investment from 8% to...

You are given the following data about Walt Disney and News Corporation, two of the major corporations in the media and entertainment industry. The data are for the end of the financial year 1999,...

A firm has total assets of $ 1 0 0 and total debt of $ 2 5 . Equity is $ 7 5 . Debt - equity ratio is 3 . Debt ratios is 2 5 % . Equity ratio is 7 5 % .

Kose, Inc., has a target debtequity ratio of .45. Its WACC is 11.2 percent, and the tax rate is 35 percent. a. If Koses cost of equity is 15 percent, what is its pretax cost of debt? b. If instead...

Suppose you sell five March 2012 silver futures contracts on November 22, 2011, at the last price of the day. What will your profit or loss be if silver prices turn out to be $31.39 per ounce at...

You are the CEO of Titan Industries and have just been awarded a large number of employee stock options. The company has two mutually exclusive projects available. The first project has a large NPV...

Payments of $3500 will be made at the end of every year for 17 years. Using a nominal rate of 5.25% compounded monthly, calculate the annuitys: a. Present value. b. Future value.

For $30,000, Manny purchased a deferred ordinary annuity from an insurance company that will pay him quarterly payments of $1076.71 for 12 1/2 years. The payments are based upon the purchase amount...

The first quarterly payment of $750 in a five-year annuity will be paid 3 3/4 years from now. Based on a discount rate of 8.25% compounded monthly, what is present value of the payments today?