We are evaluating a project that costs $868,000, has an 6-year life, and has no

Question

We are evaluating a project that costs $868,000, has an 6-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 120,000 units per year. Price per unit is $42, variable cost per unit is $29, and fixed costs are $884,492 per year. The tax rate is 37 percent, and we require a 13 percent return on this project.

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

What would be the percentage change in NPV if the sales are 1% higher than the base-case? (Do not round your intermediate calculations.)

Based on the previous answer, what would be the percentage change in NPV if projected sales fall by 4%? (Do not round your intermediate calculations.)

What is the change in OCF if variable costs are instead $28 per unit? (Do not round your intermediate calculations.)

Explanation / Answer

contribution margin

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