Consider a 3-Year Project with the Following Information: Initial Fixed

question 5

Multiple Choice

Consider a 3-year project with the following information: initial fixed asset investment = $770,000; straight-line depreciation to zero over the 3-year life; zero salvage value; price = $34.99; variable costs = $23.16; fixed costs = $245,000; quantity sold = 94,500 units; tax rate = 35 percent. How sensitive is OCF to an increase of one unit in the quantity sold?

• A) $7.69
• B) $8.38
• C) $8.67
• D) $9.97
• E) $11.83

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Definitions:

Straight-Line Depreciation

Straight-line depreciation is a method of evenly distributing the cost of a tangible asset over its useful life.

Income Taxes

Taxes levied on the income of individuals or businesses by the government.

Operating Cash Inflow

Cash generated from the core business operations of a company during a specific period.

Straight-Line Depreciation

An approach to evenly spread the expense of an asset over its period of utility.