Consider a 6-year project with the following information: initial fixed asset investment = $460,000; straight-line depreciation to zero over the 6-year life; zero salvage value; price = $34; variable costs = $19; fixed costs = $188,600; quantity sold = 90,528 units; tax rate = 32 percent.What is the sensitivity of OCF to changes in quantity sold?
A)$10.20 per unit
B)$11.16 per unit
C)$11.38 per unit
D)$12.33 per unit
E)$12.54 per unit

Question

Quizplus · Accepted Answer

OCF = [($34 - $19) × 90,528 - 188,600][1 - 0.32] + [($460,000/6) × 0.32] = $819,670.93Using 91,528 units: (You can use any amount as the second level of quantity sold as the sensitivity will be the same.)OCF = [($34 - $19) × 91,528 - 188,600][1 - 0.32] + [($460,000/6) × 0.32] = $829,870.93Sensitivity = ($829,870.93 - $819,670.93)/(91,528 - 90,528) = $10.20

Consider a 6-Year Project with the Following Information: Initial Fixed