Consider a four-year project with the following information: initial fixed asset investment = $570,000;

Consider a four-year project with the following information: initial fixed asset investment = $570,000; straight-line depreciation to zero over the four-year life; zero salvage value; price = $40; variable costs = $27; fixed costs = $245,000; quantity sold = 88,000 units; tax rate = 22 percent. how sensitive is ocf to changes in quantity sold? (do not round intermediate calculations and round your answer to 2 decimal places, e. g., 32.16.)

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  1. OCF to changes in quantity sold is sensetive to $10.14

    Explanation:

    OFC = [(P - v)Q -FC](1 - T) + TD

            = [(40 - 27)(88000) - 245000](0.78) + 0.22*(570000/4)

            = $732,570

    OFC when units are 88001

    OFC = [(P - v)Q -FC](1 - T) + TD

            = [(40 - 27)(88001) - 245000](0.78) + 0.22*(570000/4)

            = $732,580.14

    sensitive is OCF to changes in quantity sold = $10.14

    Therefore, OCF to changes in quantity sold is sensetive to $10.14

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