A proposed project has fixed costs of $84,000 per year. The operating cash flow at 6,400...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
A proposed project has fixed costs of $84,000 per year. The operating cash flow at 6,400 units is $95,800. Ignoring the effect of taxes, what is the degree of operating leverage? (Round your answer to 4 decimal places. (e.g., 32.1616)) Degree of operating leverage If units sold rise from 6,400 to 6,900, what will be the new operating cash flow? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) Operating cash flow What is the new degree of operating leverage? (Do not round intermediate calculations and round your final answer to 4 decimal places. (e.g., 32.1616)) DOL Consider a project to supply Detroit with 20,000 tons of machine screws annually for automobile production. You will need an initial $3,000,000 investment in threading equipment to get the project started; the project will last for four years. The accounting department estimates that annual fixed costs will be $850,000 and that variable costs should be $450 per ton; accounting will depreciate the initial fixed asset investment straight-line to zero over the four-year project life. It also estimates a salvage value of $280,000 after dismantling costs. The marketing department estimates that the automakers will let the contract at a selling price of $600 per ton. The engineering department estimates you will need an initial net working capital investment of $300,000. You require a 18 percent return and face a marginal tax rate of 38 percent on this project. a-1 What is the estimated OCF for this project? OCF a-2 What is the estimated NPV for this project? (Round your answer to 2 decimal places. (e.g., 32.16)) $ b. Suppose you believe that the accounting department's initial cost and salvage value projections are accurate only to within 15 percent, the marketing department's price estimate is accurate only to within +10 percent, and the engineering department's net working capital estimate is accurate only to within 15 percent. What is your worst-case and best-case scenario for this project? (Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places. (e.g.. 32.16)) NPV $ Worst-case Best-case 55 A proposed project has fixed costs of $84,000 per year. The operating cash flow at 6,400 units is $95,800. Ignoring the effect of taxes, what is the degree of operating leverage? (Round your answer to 4 decimal places. (e.g., 32.1616)) Degree of operating leverage If units sold rise from 6,400 to 6,900, what will be the new operating cash flow? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) Operating cash flow What is the new degree of operating leverage? (Do not round intermediate calculations and round your final answer to 4 decimal places. (e.g., 32.1616)) DOL Consider a project to supply Detroit with 20,000 tons of machine screws annually for automobile production. You will need an initial $3,000,000 investment in threading equipment to get the project started; the project will last for four years. The accounting department estimates that annual fixed costs will be $850,000 and that variable costs should be $450 per ton; accounting will depreciate the initial fixed asset investment straight-line to zero over the four-year project life. It also estimates a salvage value of $280,000 after dismantling costs. The marketing department estimates that the automakers will let the contract at a selling price of $600 per ton. The engineering department estimates you will need an initial net working capital investment of $300,000. You require a 18 percent return and face a marginal tax rate of 38 percent on this project. a-1 What is the estimated OCF for this project? OCF a-2 What is the estimated NPV for this project? (Round your answer to 2 decimal places. (e.g., 32.16)) $ b. Suppose you believe that the accounting department's initial cost and salvage value projections are accurate only to within 15 percent, the marketing department's price estimate is accurate only to within +10 percent, and the engineering department's net working capital estimate is accurate only to within 15 percent. What is your worst-case and best-case scenario for this project? (Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places. (e.g.. 32.16)) NPV $ Worst-case Best-case 55
Expert Answer:
Related Book For
Fundamentals of corporate finance
ISBN: 978-0078034633
10th edition
Authors: Stephen Ross, Randolph Westerfield, Bradford Jordan
Posted Date:
Students also viewed these accounting questions
-
If we consider the effect of taxes, then the degree of operating leverage can be written as: DOL=1+ [FC (1-To-Tcx DJ/OCF Consider a project to supply Detroit with 27,000 tons of machine screws...
-
Consider a project to supply Detroit with 35,000 tons of machine screws annually for automobile production. You will need an initial $2,900,000 investment in threading equipment to get the project...
-
Consider a project to supply Detroit with 60,000 tons of machine screws annually for automobile production. You will need an initial $3,250,000 investment in threading equipment to get the project...
-
Suppose that Canada produces two goods: lumber and fish. It has 18 million workers, each of whom can cut 10 feet of lumber or catch 20 fish each day. a. What is the maximum amount of lumber Canada...
-
On January 1, Klosterman Company issued $500,000, 10%, 10-year bonds at face value. Interest is payable semiannually on July 1 and January 1. Instructions Prepare journal entries to record the...
-
A chemist finds that the addition of (+)-epinephrine to the catalytic reduction of butan-2-one (Figure 5-16) gives a product that is slightly optically active, with a specific rotation of +0.45o...
-
What is eco-efficiency? How is it measured? Why is it measured? Where is it reported?
-
1. Battery is unpermitted, unprivileged, intentional contact with anothers person. In a physician-patient relationship, how does a physician receive consent to touch the body of a patient? 2. Could...
-
Suppose a portfolio consists of the following stocks: Stock Amount Beta Chevron $20,000 .70 GE $40,000 1.30 Whirlpool $40,000 1.10 The risk free rate is 5 percent and the market risk premium is 8.8...
-
Jan Martinelli, a junior in college, has been seeking ways to earn extra spending money. As an active sports enthusiast. Jan plays tennis regularly at the Naples Tennis Club, where her family has a...
-
Review the case of Elin Gonzlez, a 6-year-old Cuban child who was the sole survivor of a raft carrying 12 people from Cuba. After he arrived in Florida, the Immigration and Naturalization Service...
-
A business had always made an allowance for doubtful debts at the rate of 3 per cent of accounts receivable. On 1 January 2015 the amount for this, brought forward from the previous year, was 400....
-
(A) Explain why a provision may be made for doubtful debts. (B) Explain the procedure to be followed when a customer whose debt has been written-off as bad subsequently pays the amount originally...
-
A business, which started trading on 1 January 2014, adjusted its allowance for doubtful debt at the end of each year on a percentage basis, but each year the percentage rate is adjusted in...
-
Three of the accounts in the ledger of Charlotte Williams indicated the following balances at 1 January 2017: Insurance paid in advance 562; Wages outstanding 306; Rent receivable, received in...
-
A business makes an allowance for doubtful debts of 3% of accounts receivable, also a provision of 1% for discount on accounts receivable. On 1 January 2015 the balances brought forward on the...
-
2. The acceleration due to gravity of a planet R is a = -g where h g is the acceleration due to gravity on the surface of the planet, R is the radius of the planet, and h is the distance from the...
-
Huntingdon Capital Corp. is a competitor of Plazacorp and First Capital Realty. Huntingdon reported the following selected information (in millions):...
-
Pangaea Corporation needs to raise funds to finance a plant expansion, and it has decided to issue 25-year zero coupon bonds to raise the money. The required return on the bonds will be 7 percent. a....
-
Paget, Inc., has a target debtequity ratio of 1.25. Its WACC is 9.2 percent, and the tax rate is 35 percent. a. If the companys cost of equity is 14 percent, what is its pretax cost of debt? b. If...
-
At an output level of 15,000 units, you have calculated that the degree of operating leverage is 2.61. The operating cash flow is $57,000 in this case. Ignoring the effect of taxes, what are fixed...
-
Continuing Problem 13, the string is stretched to the position shown in Figure 2.45. Calculate the natural frequency of the system using the following parameter values: \(m g=2 \mathrm{lb}, T=50...
-
Derive the equation of motion for a uniform stiff rod restrained from vertical motion by a torsional spring of stiffness \(K\) and two translational springs each of stiffness \(k\), as shown in...
-
A uniform rigid and massless rod is pinned at one end and connected to ground via a spring at the other end. At midpoint on the rod, a spring is connected to a mass which is connected to a fixed...
Study smarter with the SolutionInn App