$"$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 $$27,$ and fixed costs are$$$$950,000$ per year. The tax rate is $22$ percent, and we require a return of $10$ percent$$on this project.

a$.$ Calculate the accounting break$-$even point. What is the degree of operating leverage$$at the accounting break$-$even point?

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

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."

Input area:

$$ Initial cost $$845,000\mathrm{.}00$

$$ Project life $8$

$$ Units sales $51,000$

$$ Price$/$unit $$53\mathrm{.}00$

$$ Variable cost$/$unit $$27\mathrm{.}00$

$$ Fixed costs $$950,000\mathrm{.}00$

$$ Tax rate $22\%$

$$ Required return $10\%$

b$.$ New quantity for calculation $52,000$

$$ Projected sales change $(500)$

c$.$ New VC for calculation $$28\mathrm{.}00$

$$ Projected VC change $($$$1\mathrm{.}00)$

$($Use cells A$6$ to C$17$ from the given information to complete this question. You must use the built$-$in Excel function to answer this question. The OCF must be calculated using the depreciation tax shield approach.$)$

Output area:

a$.$ Depreciation per year $=$$$105,625$

$$ Accounting break$-$even $=40,600\mathrm{.}96$

$$ DOL$=$

b$.$ Base OCF$=$

$$ Base NPV$=$

$$ OCF at new quantity$=$

$$ NPV at new quantity $=$

$$ DNPV$/$DQ $=$

$$ Change in NPV for given quantity change$=$

c$.$ OCF $=$

$$ DOCF$/$DVC $=$

Change in NPV for given VC change$=$