We are evaluating a project that costs $1,120,000, has a ten-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 64,000 units per year. Price per unit is $50, variable cost per unit is $25, and fixed costs are $620,000 per year. The tax rate is 35 percent, and we require a return of 12 percent on this project.
a. Calculate the accounting break-even point.
b. Calculate the base-case cash flow and NPV
b-2 What is the sensitivity of NPV to changes in the sales figure?
c. What is the sensitivity of OCF to changes in the variable cost figure?