We are evaluating a project that costs $$948,000,$ has an $12-$year life, and has no salvage value. Assume that depreciation is straight$-$line to zero over the lie of the project. Sales are projected at $122,000$ units per year. Price per unit is $$38,$ variable cost per unit is $$27,$ and foxed costs are $$958,428$ per year. The tax rate is $30$ percent, and we require a $17$ percent return on this project.

Requirement $1$: Break$-$Even

$($a$)$Calculate the accounting break$-$even point. $($Do not round your intermediate calculations.$)$

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$($b$)$What is the degree of operating leverage at the accounting break$-$even point? $($Do not round your intermediate calculations.$)$

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Requirement $2$: Base$-$Case $8$ NPV Sensitivity

$($a$)$Calculate the base$-$case operating cash flow. $($Do not round your intermediate calculations.$)$

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$($b$)$Calculate the base$-$case NPV$.($Do not round your intermediate calculations.$)$

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$($c$)$ What is the sensitivitylelasticity of NPV to changes in the sales figure?

Recall from your economics class that an elasticity measures a percentage change in one variable due to a percentage change in another. So simply increase sales quantity by $1$ percent, calculate the new NPV$,$ and then calculate the percentage change in the NPV$.($Do not round your intermediate calculations.$)$

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$($d$)$ Based on this sensitivity$,$ what is the change in NPV $($in dollars$)$ if there is a $8$ percent decrease in projected sales? $($Do not round your intermediate calculations$)$

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$($b$)$Calculate the base$-$case NPV$.($Do not round your intermediate calculations.$)$

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$($c$)$ What is the sensitivitylelasticity of NPV to changes in the sales figure?

Recall from your economics class that an elasticity measures a percentage change in one variable due to a percentage change in another. So simply increase sales quantity by $1$ percent, calculate the now NPV$,$ and then calculate the percentage change in the NPV$.($Do not round your intermediate calculations.$)$

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$($d$)$Based on this sensitivity$,$ what is the change in NPV $($in dollars$)$ if there is a $8$ percent decrease in projected sales? $($Do not round your intermediate calculations.$)$

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Requirement $3$: Sensitivity of OCF

$($a$)$In addition to NPV$,$ we can calculate the sensilivity of other things, such as OCF. What Is the sensilvity of base$-$case OCF to changes in the variable cost? Estimate the sensitivity by increasing variable costs by tolk. $($De not round your intermediate calculations.$)$

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$($b$)$Dased on this sensitivity$,$ estimate the change in OCF $($in doltars$)$ given a $9$ h decrease In the variable costs? $($De not round your intermediate calculations.$)$

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