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Pastoral Healthcare Inc. is considering the following project. Assume that the corporate tax rate is 21% and the firm's discount rate is 10%.

Duration: 5 years

Initial investment: $3 million

Number of units: 5,000 (per year)

Price per unit: $500.00

Variable cost per unit: $265.00

Annual fixed costs: $250,000

a) What is the annual operating cash flow (OCF) of the project? Use straight line depreciation method for the depreciation calculation. (2 points)

b) What is the net present value (NPV) of the project? (2 points)

c) What is the sensitivity to the change in the variable cost per unit in the NPV? Be sure that the sign (positive/negative) of your answer is correct.

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Answered by Tutorwinnie on coursehero.com

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