Question

Consider a four-year project with the following information: initial fixed asset investment = $$\$ 480,000$$; straight-line depreciation to zero over the four-year life; zero salvage value; price $$=\$ 37 ;$$ variable costs $$=\$ 23 ;$$ fixed costs $$=\$ 195,000 ;$$ quantity sold $=90,000$ units; tax rate $=34$ percent. How sensitive is operating cash flow to changes in quantity sold?

   Consider a four-year project with the following information: initial fixed asset investment = $$\$ 480,000$$; straight-line depreciation to zero over the four-year life; zero salvage value; price $$=\$ 37 ;$$ variable costs $$=\$ 23 ;$$ fixed costs $$=\$ 195,000 ;$$ quantity sold $=90,000$ units; tax rate $=34$ percent. How sensitive is operating cash flow to changes in quantity sold?

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Corporate Finance Canadian Edition

Corporate Finance Canadian Edition

& 4 more Prof… 8th Edition

Chapter 9, Problem 8

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Step 1

Step 1: Calculate the annual depreciation expense Annual depreciation expense = (Initial fixed asset investment) / (Number of years) Annual depreciation expense = $480,000 / 4 = $120,000 Show more…

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Consider a four-year project with the following information: initial fixed asset investment = $$\$ 480,000$$; straight-line depreciation to zero over the four-year life; zero salvage value; price $$=\$ 37 ;$$ variable costs $$=\$ 23 ;$$ fixed costs $$=\$ 195,000 ;$$ quantity sold $=90,000$ units; tax rate $=34$ percent. How sensitive is operating cash flow to changes in quantity sold?

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