Break-Even and Taxes This problem concerns the effect of taxes on the various break-even measures. a. Show

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Break-Even and Taxes This problem concerns the effect of taxes on the various break-even measures.

a. Show that, when we consider taxes, the general relationship between operating cash flow, OCF, and sales volume, Q, can be written as:

OCF - TXD 1-T FC +

b. Use the expression in part (a) to the cash, accounting, and financial break-even points for the Wet way sailboat example in the chapter. Assume a 38 percent tax rate.

c. In part (b), the accounting break-even should be the same as before. Why? Verify this algebraically.

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Fundamentals of Corporate Finance

ISBN: 978-0077861629

8th Edition

Authors: Stephen A. Ross, Randolph W. Westerfield, Bradford D.Jordan

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Question Posted: Apr 28, 2011 03:11 AM

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Break-Even and Taxes This problem concerns the effect of taxes on the various break-even measures. a. Show

Question:

OCF - TXD 1-T FC +

Step by Step Answer:

a The tax shield definition of OCF is OCF P v Q F C 1 t C t C D Rearranging and so...View the full answer

Fundamentals of Corporate Finance

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