Consider a 6-year project with the following information: initial fixed asset investment = $460,000; straight-line depreciation

At an output level of 50,000 units, you calculate that the degree of operating leverage is 1.8. What will be the percentage change in operating cash flow if the new output level is 54,500 units?    A.  5.00 percent B.  6.17 percent C.  16.20 percent D.  17.43 percent E.  20.00 percent DOL = 1.8 = Percentage change in OCF/[54,500 - 50,000)/50,000]; %ΔOCF = 16.20 percent

96.

A proposed project has fixed costs of $36,000 per year. The operating cash flow at 18,000 units is $58,000. What will be the new degree of operating leverage if the number of units sold rises to 18,500?    A.  1.46 B.  1.59 C.  1.67 D.  2.08 E.  2.14 DOL = 1 + ($36,000/$58,000) = 1.62068966 Percentage change in Q = (18,500 - 18,000)/18,000 = 2.7778 percent At 18,500 units, percentage change in OCF = 1.62068966 × .027778 = 4.501916 percent New OCF = $58,000 × (1 + 0.04501916) = $60,611.11 At 18,500 units, DOL = 1 + ($36,000/$60,611.11) = 1.59

97.

Consider a 6-year project with the following information: initial fixed asset investment = $460,000; straight-line depreciation to zero over the 6-year life; zero salvage value; price = $34; variable costs = $19; fixed costs = $188,600; quantity sold = 90,528 units; tax rate = 32 percent. What is the sensitivity of OCF to changes in quantity sold?    A.  $10.20 per unit B.  $11.16 per unit C.  $11.38 per unit D.  $12.33 per unit E.  $12.54 per unit OCF = [($34 - $19) × 90,528 - 188,600][1 - 0.32] + [($460,000/6) × 0.32] = $819,670.93 Using 91,528 units: (You can use any amount as the second level of quantity sold as the sensitivity will be the same.) OCF = [($34 - $19) × 91,528 - 188,600][1 - 0.32] + [($460,000/6) × 0.32] = $829,870.93 Sensitivity = ($829,870.93 - $819,670.93)/(91,528 - 90,528) = $10.20