Question

Consider a four-year project with the following information: initial fixed asset investment = $540,000; straight-line depreciation to zero over the four-year life; zero salvage value; price = $34; variable costs = $23; fixed costs = $215,000; quantity sold = 70,000 units; tax rate = 21 percent. |

a. |
What is the degree of operating leverage at the given level of
output? |

b. |
What is the degree of operating leverage at the accounting
break-even level of output? |

Answer #1

Work:-

Consider a four-year project with the following information:
initial fixed asset investment = $625,000; straight-line
depreciation to zero over the four-year life; zero salvage value;
price = $51; variable costs = $39; fixed costs = $300,000; quantity
sold = 121,000 units; tax rate = 23 percent.
a.
What is the degree of operating leverage at the given level of
output? (Do not round intermediate calculations and round
your answer to 4 decimal places, e.g., 32.1616.)
b.
What is the...

Consider a four-year project with the following information:
initial fixed asset investment = $476061; straight-line
depreciation to zero over the four-year life; zero salvage value;
price = $34; variable costs = $24; fixed costs = $194366; quantity
sold = 79941 units; tax rate = 31 percent. Calculate the
sensitivity of the OCF to changes in the quantity sold. (Do not
round intermediate calculations and round your final answer to 2
decimal places. Omit the "$" sign and commas in your...

Consider a project with the following information: Initial fixed
asset investment = $490,000; straight-line depreciation to zero
over the 4-year life; zero salvage value; price = $42; variable
costs = $25; fixed costs = $192,000; quantity sold = 92,000 units;
tax rate = 21 percent.
How sensitive is OCF to changes in quantity sold? (Do
not round intermediate calculations and round your answer to 2
decimal places, e.g., 32.16.)

Consider a four-year project with the following information:
initial fixed asset investment = $491,731; straight-line
depreciation to zero over the four-year life; zero salvage value;
price = $33; variable costs = $24; fixed costs = $195,602; quantity
sold = 79,813 units; tax rate = 36 percent. Calculate the
sensitivity of the OCF to changes in the quantity sold.
[Hint: Think of this as, "How much does OCF change if we
can sell one more unit each year?"]
(Do not round...

A proposed project has fixed costs of $78,000 per year. The
operating cash flow at 4,500 units is $95,600. Ignoring the effect
of taxes, what is the degree of operating leverage? (Do not round
intermediate calculations. Round your answer to 4 decimal places,
e.g., 32.1616.) Degree of operating leverage If units sold rise
from 4,500 to 5,000, what will be the new operating cash flow? (Do
not round intermediate calculations. Round your answer to 2 decimal
places, e.g., 32.16.) Operating...

(ABC) Consider a 4 year project with the following
information:
Initial fixed asset investment = $475,000;
straight line depreciation to zero over the 4-year life;
zero salvage value;
price = $26; variable costs = $18;
fixed costs = $195,000
Quantity sold = 84,000 units
Tax rate = 34%
How sensitive is OCF to changes in quantity sold? use $76,000
units for your new calculations
(do not roundintermediate calculaitons, round final answer to 2
decimal places)

A project has the following estimated data: price = $52 per
unit; variable costs = $33 per unit; fixed costs = $15,500;
required return = 12 percent; initial investment = $32,000; life =
four years.
Ignoring the effect of taxes, what is the accounting break-even
quantity? (Do not round intermediate calculations. Round
your answer to 2 decimal places, e.g., 32.16.)
Break-even quantity
What is the cash
break-even quantity? (Do not round intermediate
calculations. Round your answer to 2...

A project has the following estimated data: Price = $48 per
unit; variable costs = $32 per unit; fixed costs = $20,500;
required return = 8 percent; initial investment = $36,000; life =
six years. a. Ignoring the effect of taxes, what is the accounting
break-even quantity? (Do not round intermediate calculations and
round your answer to 2 decimal places, e.g., 32.16.) b. What is the
cash break-even quantity? (Do not round intermediate calculations
and round your answer to 2...

Consider a 9-year project with the following information:
initial fixed asset investment = $430,000; straight-line
depreciation to zero over the 9-year life; zero salvage value;
price = $32; variable costs = $17; fixed costs = $167,700; quantity
sold = 98,943 units; tax rate = 33 percent. How sensitive is OCF to
changes in quantity sold?

A project has fixed costs of $2,100 per year, depreciation
charges of $600 a year, annual revenue of $10,800, and variable
costs equal to two-thirds of revenues.
a. If sales increase by 20%, what will be the
percentage increase in pretax profits? (Do not round
intermediate calculations. Enter your answer as a percent rounded
to 2 decimal places.)
b. What is the degree of operating leverage of
this project? (Do not round intermediate calculations.
Round your answer to 2 decimal...

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