Please show ALL work... 1. Consider a 6-year project with the following informat

Question

Please show ALL work... 1. Consider a 6-year project with the following information: initial fixed asset investment= $370,000; straight-line depreciation to zero over the 6-year life; zero salvage value; price = $38; variable costs = $15; fixed costs = $133,200; quantity sold = 63,936 units; tax rate = 34 percent. How sensitive is OCF to changes in quantity sold? a) $19.58 b) $10.78 c) $17.31 d) $15.18 e) $0.07 2. At an output level of 37,000 units, you calculate that the degree of operating leverage is 2.20. If output rises to 42,180 units. what will the percentage change in operating cash flow be? a) 30.80% b) 27.02% c) 32.34% d) 31.72% e) 29.26%

Explanation / Answer

Using the tax shield approach, the OCF at 63936 units will be:

          OCF = [(P

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