Need help answering probem c. We are evaluating a project that costs $845,000, 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 51,000 units per year. Price per unit is $53, variable cost per unit is $27, and fixed costs are $950,000 per year. The tax rate is 22%, and we require a return of 10% on this project.

a. Calculate the accounting break-even point.

Depreciation per year = $845,000/8 = $105,625

Contribution margin per unit = Price per unit - Variable cost per unit

= $53-$27 =$26

Accounting break-even point = (Fixed assets + Depreciation)/Contribution margin per unit

= ($950,000 + $105,625)/$26

= 40,600.96 units

40,600.96*26/(40600.96*26)-950000

=9.99

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 the a 500-unit decrease in projected sales.

[51000*(53-27)-950000]*(1-0.22)+105625*0.22

=316517.50

316517.50*(1/0.10)*[1-(1/1+0.10)^8)]-845000

=843597.50

854416.73-843597.50/51100-51000

=108.19

500*108.19

=54095

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