We are evaluating a project that costs $1,160,000, 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 44,000 units per year. Price per unit is $45, variable cost per unit is $20, and fixed costs are $645,000 per year. The tax rate is 35 percent, and we require a return of 20 percent on this project.
A. Calculate the accounting break-even point
B. What is the degree of operating leverage at the accounting break-even point?
C. Calculate the base-case cash flow and NPV.
D. What is the sensitivity of NPV to changes in the sales figure?
E. What is the sensitivity of OCF to changes in the variable cost figure?