The company is considering an expansion project at the beginning of this year. the initial capital expenditure
Question:
The company is considering an expansion project at the beginning of this year. the initial capital expenditure of $3000 will be depreciated straight line over its useful life of six years to a final value of zero. this project will increase this years sales revenue and will produce an additional fixed cost of 1200 for this year. the growth rate of the sales revenue and fixed cost are zero in the six year period the variable cost is $50 per unit and the selling price is $80 per unit the discount rate is 8% and the corporate tax rate is 20% there are no changes in the working capital investment or additional capital expenditure in the next year period
a) what is the accounting break-even level of annual sales volume?
b) what is the NPV break-even level of annual sales volume
c) what is the degree of operating leverage (DOL) if the sales revenue is $8000
d) If the sales volume increases by 10%what will be the percentage increase in EBIT
e) If the firm transforms part of the fixed cost into the variable cost what is the impact on DOL
Expert Answer:
a Break Even Sales Units 1700 375 80 5667 Fixed Cost PV Ratio PV Ratio Selling Price Variable Cost S... View the full answer
