I need help with A2 a2 What is the degree of operating leve

I need help with A.2 . /a-2 What is the degree of operating leverage at the accounting break-even point?

Problem 11-5 Sensitivity Analysis and Break-Even [LO1, 3] We are evaluating a project that costs $1,120,000, has a ten-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 64,000 units per year. Price per unit is $50, variable cost per unit is $25, and fixed costs are $620,000 per year. The tax rate is 35 percent, and we require a return of 12 percent on this project. a-1 Calculate the accounting break-even point. (Do not round intermediate calculations. Round your answer to the nearest whole number, e.g., 32.) Break-even point 29280 units a-2 What is the degree of operating leverage at the accounting break-even point? (Do not round intermediate calculations. Round your answer to 3 decimal places, e.g., 32.161.) DOL b-1 Calculate the base-case cash flow and NPV. (Do not round intermediate calculations. Round youn cash flow answer to the nearest whole number, e.g., 32. Round your NPV answer to 2 decimal places, e.g., 32.16.) Cash flovw 676200 NPV 2700680.81 b2 What is the sensitivity of NPV to changes in the sales figure? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) s91.82 ANPVIAQ c. What is the sensitivity of OCF to changes in the variable cost figure? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to the nearest whole number, e.g., 32.) 41600 References eBook & Resources

Solution

At breakeven Sales 29280 Revenue 1464000 Variable Cost 732000 Fixed costs 620000 Depreciation 112000 PBT 0 DOL = (Revenue - Variable Costs)/(Sales - Variable Costs - total fixed costs) DOL = 6.536