In the previous problem, suppose the projects given for price, quantity, variable costs, and fixed costs are all accurate to within $+/-10$ percent. Calculate the best$-$case and worst case NPV figures.$($The previous question is down below and the asnwers I got, however, I$\text{'}$m not sure if they are correct$).$

We are evaluating a project that costs $$588,000$; has an eight$-$year life and has no salvage value. Assume that depreciation is straight$-$line to zero over the life of the project. Sales are projected at $70,000$ units per year. Price per unit is $$36,$ variable cost per unit is $$20,$ and fixed costs are $$695,000$ per year. The tax rate is $35$ percent, and we require a return of $15$ percent on this project.

Part a: Calculate the accounting break even.

The accounting break$-$even point is $48,031$ units.

Part 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? $($Professor Cursio comments: some textbooks use the term $$sensitivity$$ to literally mean add one and$/$or subtract one unit of something $$ in this case sales $$ to see what the changes are. But for our purposes, the only sensitivity we carbe about is what the effect would be if sales are $500$ units less than the base$-$case projection.$)$

A decrease of $500$ units will result a decrease in $$23,335$ in NPV

Part c: What is the sensitivity of OFC to changes in the variable cost figure? Explain what your answer tells you about a $$1$ decrease in variables costs. $($Professor Cursio comments: similar to part b$,$ all we care about is the effect of variable costs being one dollar less than the base$-$case projection.$)$

A decrease of $$1$ in variable cost increases operating cash flow by $$45,500$