Magellen Industries is analyzing a new project. The data they have gathered to date is as follows:
Initial requirement for equipment: $120,000
Depreciation: Straight-line to zero over the four-year life of the project with no salvage value.
Required rate of return: 15%
Marginal tax rate: 35%
a. What is the operating cash flow under the base-case scenario?
b. What is the net income under the worst-case scenario?
c. What is the net present value under the best-case scenario?
d. What is the degree of operating leverage under the worst-case scenario?
e. What is the sensitivity of the net present value to a $1 increase in the fixed cost?
f. What is the sensitivity of the net present value to a $1 decrease in the variable cost per unit?