We are evaluating a project that costs $719,000, has a life of 15 years, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 124,000 units per year. Price per unit is $39, variable cost per unit is $20, and fixed costs are $728,347 per year. The tax rate is 22 percent, and we require a return of 17 percent on this project.

1a. Calculate the accounting break-even point:

• 38,334 units
• 41,857 units
• 39,757 units
• 40,334 units
• 40,857 units

1b. What is the degree of operating leverage at the accounting break-even point?

• 16.195
• 1.066
• 16.295
• 16.095
• 1.166

2a. Calculate the base-case cash flow.

• 1,280,115
• $347,539
• $1,300,115
• $1,260,115
• $357,539

2b. Calculate the NPV.

• 6,096,570
• $6,106,570
• $6,086,570
• $347,539
• $357,539

2c. What is the sensitivity of NPV to changes in the quantity sold?

• $78.904
• $49.106
• $79.004
• $78.804
• $49.306

2d. What your answer tells you about a 500-unit decrease in the quantity sold?

• $-39,452.23
• $-347,539.00
• $-40,452.23
• $-38,452.23
• $-346,539.00

3a. What is the sensitivity of OCF to changes in the variable cost figure?

• $-96,720
• $-41,857
• $-40,857
• $-97,720
• $-95,720

3b. How much will OCF change if variable costs decrease by $1?

• $96,720
• $41,857
• $97,720
• $95,720
• $42,857