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# course hero 9 - Sensitivity Analysis and Break Even We are...

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Sensitivity Analysis and Break Even: We are evaluating a project that costs \$936,000, has an eight-year life, and has no salvage value. Assume that the depreciation is straight-line to zero over the life of the project. Sales are projected at 100,000 units per year. Price per unit is \$41, variable cost per unit is \$26, and fixed costs are \$850,000 per year. The tax rate is 35%, and we require a 15 percent return on this project. a.Calculate the accounting break-even point. What is the degree of operating leverage at the accounting break-even point? b.Calculate the base-case cash flow and NPV. What is the sensitivity of NPV to changes in the sales figure? Explain what your answer tells you about a 500-unit decrease in projected sales. c.What is the sensitivity of OCF to changes in the variable cost figure? Explain what your answer tells you about a \$1 decrease in estimated variable costs. Accounting break even point = Fixed Cost + Depreciation / Contribution Margin per unit = \$850000 + \$117000/ \$41 - \$26 = 64467units. Depreciation = \$936000 - \$0 / 8 = \$117000

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