Question

We are evaluating a project that costs $844,200, has a nine-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 80,000 units per year. Price per unit is $54, variable cost per unit is $38, and fixed costs are $760,000 per year. The tax rate is 23 percent, and we require a return of 10 percent on this project. |

a-1. |
Calculate the accounting break-even point. |

a-2. |
What is the degree of operating leverage at the accounting
break-even point? (Do not round intermediate calculations
and round your answer to 3 decimal places, e.g.,
32.161.) |

b-1. |
Calculate the base-case cash flow and NPV. (Do not
round intermediate calculations. Round your cash flow answer to the
nearest whole number, e.g., 32. Round your NPV answer to 2 decimal
places, e.g., 32.16.) |

b-2. |
What is the sensitivity of NPV to changes in the quantity sold?
(Do not round intermediate calculations and round your
answer to 2 decimal places, e.g., 32.16.) |

c. |
What is the sensitivity of OCF to changes in the variable cost
figure? (A negative answer should be indicated by a minus
sign. Do not round intermediate calculations and round your answer
to the nearest whole number, e.g., 32. ) |

Answer #1

We are evaluating a project that costs $690,000, has a five-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 71,000 units per year. Price per unit is $75, variable
cost per unit is $50, and fixed costs are $897,000 per year. The
tax rate is 35 percent, and we require a return of 15 percent on
this project.
a. Calculate the accounting break-even point.
(Do...

We are evaluating a project that costs $717,000, has a
twelve-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 154,000 units per year. Price per unit is
$39, variable cost per unit is $25, and fixed costs are $722,019
per year. The tax rate is 38 percent, and we require a 18 percent
return on this project.
Requirement 1:
Calculate the accounting break-even point.(Round your...

We are evaluating a project that costs $1,140,000, has a life of
10 years, and has no salvage value. Assume that depreciation is
straight-line to zero over the life of the project. Sales are
projected at 36,000 units per year. Price per unit is $50, variable
cost per unit is $20, and fixed costs are $720,000 per year. The
tax rate is 23 percent and we require a return of 12 percent on
this project.
a.
Calculate the accounting...

We are evaluating a
project that costs $732,000, has a life of 6 years, and has no
salvage value. Assume that depreciation is straight-line to zero
over the life of the project. Sales are projected at 39,000 units
per year. Price per unit is $60, variable cost per unit is $30, and
fixed costs are $640,000 per year. The tax rate is 22 percent and
we require a return of 16 percent on this project.
a.
Calculate the
accounting...

We are evaluating a project that costs $1,860,000, has a 6-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 89,300 units per year. Price per unit is $38.31,
variable cost per unit is $23.50, and fixed costs are $833,000 per
year. The tax rate is 21 percent, and we require a return of 9
percent on this project.
a.
Calculate the base-case operating cash flow...

We are evaluating a project that costs $1,582,000,
has a seven-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 87,100 units per year. Price per unit is
$34.30, variable cost per unit is $20.55, and fixed costs are
$751,000 per year. The tax rate is 30 percent, and we require a
return of 12 percent on this project.
What is the sensitivity of OCF to...

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...

A project under consideration costs $200,000, has a five-year
life and has no salvage value. Depreciation is straight-line to
zero. The firm has made the following projections related to this
project:
Base
Case
Lower
Bound
Upper
Bound
Unit Sales
2,000
1,800
2,200
Price Per Unit
$400
$360
$440
Variable Cost Per Unit
$200
$180
$220
Fixed Costs
$300,000
$270,000
$330,000
The required return is 15 percent and the tax rate is 21 percent.
No additional investment in net working capital...

A project has the following cash flows:
Year Cash Flow
0 –$ 16,600
1 7,300
2 8,600
3 7,100
What is the NPV at a discount rate of zero percent? (Do not
round intermediate calculations and round your answer to the
nearest whole number, e.g., 32.)
What is the NPV at a discount rate of 12 percent? (Do not round
intermediate calculations and round your answer to 2 decimal
places, e.g., 32.16.)
What is the NPV at a discount rate...

A project has the following cash flows: Year Cash Flow 0 –$
15,400 1 6,100 2 7,400 3 5,900 What is the NPV at a discount rate
of zero percent? (Do not round intermediate calculations and round
your answer to the nearest whole number, e.g., 32.) NPV $ 4,000
What is the NPV at a discount rate of 8 percent? (Do not round
intermediate calculations and round your answer to 2 decimal
places, e.g., 32.16.) NPV $ 1,276.06 What is...

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