Question

the variable cost per unit for a proposed project is $8.48 and the annual fixed costs are $27,400. these costs can vary by ± 5 percent. annual depreciation is $13,290 and the tax rate is 21 percent. the sale price is $13.29 a unit, ± 2 percent. if the firm bases its sensitivity analysis on the expected outcome, what will be the operating cash flow for a sensitivity analysis of 9,200 units?

Answer 1

If the firm bases its sensitivity analysis on the expected outcome, the operating cash flow for a sensitivity analysis of 9,200 units is:  $16,103.98.

Operating cash flow

First step is to calculate the net income

Net income = {[9,200($13.29 − 8.48)] − $27,400 − $13,290}(1 − .21)

Net income={[9,200($4.81)] − $27,400 − $13,290}(.79)

Net income={$44,252- $27,400 −$ 13,290}(.79)

Net income=$3,562 (.79)

Net income = $2,813.98

Second step is to calculate the operating cash flow (OCF)

OCF = $2,813.98 + 13,290

OCF = $16,103.98

Therefore if the firm bases its sensitivity analysis on the expected outcome, the operating cash flow for a sensitivity analysis of 9,200 units is:  $16,103.98.

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