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(ABC) Consider a 4 year project with the following information: Initial fixed asset investment = $475,000;...

(ABC) Consider a 4 year project with the following information:

Initial fixed asset investment = $475,000;

straight line depreciation to zero over the 4-year life;

zero salvage value;

price = $26; variable costs = $18;

fixed costs = $195,000

Quantity sold = 84,000 units

Tax rate = 34%

How sensitive is OCF to changes in quantity sold? use $76,000 units for your new calculations

(do not roundintermediate calculaitons, round final answer to 2 decimal places)

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Answer #1
Calculation of Operating Cash flow
Unit sold        84,000.00        76,000.00
Contribution Margin = Sales - variable costs      672,000.00      608,000.00
Less: Fixed costs      195,000.00      195,000.00
Depreciation      118,750.00      118,750.00
Earnings before tax      358,250.00      294,250.00
Less: Tax      121,805.00      100,045.00
Net Income      236,445.00      194,205.00
Add: Depreciation (non-cash expense)      118,750.00      118,750.00
OCF      355,195.00      312,955.00
Change in OCF        42,240.00
% change in OCF 0.118920593
% Change in Units                  0.10
Sensitivity %                  1.25
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