Question

Question 27 of 55 estion 27 10 points Save Ang Consider a four-year project with the following information: initial fixed asset investment = $575,000; straight-line depreciation to zero over the four-year life; zero salvage value; price = $36; variable costs = $17; fixed costs = $175,000; quantity sold 84,000 units; tax rate = 34%. How sensitive is OCF to changes in quantity sold? (Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response) (Do not forget to include + or - sign) Question 27 of 55 A Moving to another question will save this response. MacBook Air 12 F6 80 F3 F4 & A 8

Answer 1

ANSWER

Sl No	Particulars	Calculation	Amount @ Sale of 84,000 Units	Amount @ Sale of 90,000 Units	Difference
1	Sales Price		$36	$36
2	Variable Cost		$17	$17
3	Contribution	(1) - (2)	$19	$19
4	Units Sold		84,000 Units	90,000 Units	6,000 Units
5	Total Contribution	(3) * (4)	$1,596,000	$1,710,000
6	Fixed Cost		$175,000	$175,000
7	Depreciation	$575,000 / 4 Years	$143,750	$143,750
8	Profit Before Taxes	(5) - (6) - (7)	$1,277,250	$1,391,250
9	Tax	34%	$434,265	$473,025
10	Profit after Tax	(8) - (9)	$842,985	$918,225
11	OCF	(10) + (7)	$986,735	$1,061,975	$75,240

Sensitivity of OCF = Change in OCF / Change in the no of units sold

= $75,240 / 6,000 Units

= $12.54

Note : Here in the question I have taken an increse in sale of 6000 units