What is the sensitivity of ocf to changes in variable cost

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We are evaluating a project that costs $1,675,000, has a six-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 91,000 units per year. Price per unit is $35.95, variable cost per unit is $21.40, and fixed costs are $775,000 per year. The tax rate is 35 percent, and we require a return of 11 percent on this project.

What is the sensitivity of OCF to changes in the variable cost figure?

Sensitivity of OCF ------> $.................

If there is a $1 decrease in estimated variable costs, how much would the increase in OCF be?

Increase in OCF ------> $................

Reference no: EM13934722

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