We are evaluating a project that costs $908,000, has an 9-year life, and has no salvage...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
We are evaluating a project that costs $908,000, has an 9-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 103,000 units per year. Price per unit is $41, variable cost per unit is $20, and fixed costs are $913,448 per year. The tax rate is 32 percent, and we require a 14 percent return on this project. Requirement 1: Break-Even (a)Calculate the accounting break-even point. (Do not round your intermediate calculations.) (Click to select) (b)What is the degree of operating leverage at the accounting break-even point? (Do not round your intermediate calculations.) (Click to select) Requirement 2: Base-Case & NPV Sensitivity (a)Calculate the base-case operating cash flow. (Do not round your intermediate calculations.) (Click to select) (b)Calculate the base-case NPV. (Do not round your intermediate calculations.) (Click to select) (c) What is the sensitivity/elasticity of NPV to changes in the sales figure? Recall from your economics class that an elasticity measures a percentage change in one variable due to a percentage change in another. So simply increase sales quantity by 1 percent, calculate the new NPV, and then calculate the percentage change in the NPV. (Do not round your intermediate calculations.) (Click to select) ces 3: Sensitivity of OCF Requirement (a)In addition to NPV, we can calculate the sensitivity of other things, such as OCF. What is the sensitivity of base-case OCF to changes in the variable cost? Estimate the sensitivity by increasing variable costs by 10%. (Do not round your intermediate calculations.) (Click to select) (b)Based on this sensitivity, estimate the change in OCF (in dollars) given a 15% decrease in the variable costs? (Do not round your intermediate calculations.) (Click to select) We are evaluating a project that costs $908,000, has an 9-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 103,000 units per year. Price per unit is $41, variable cost per unit is $20, and fixed costs are $913,448 per year. The tax rate is 32 percent, and we require a 14 percent return on this project. Requirement 1: Break-Even (a)Calculate the accounting break-even point. (Do not round your intermediate calculations.) (Click to select) (b)What is the degree of operating leverage at the accounting break-even point? (Do not round your intermediate calculations.) (Click to select) Requirement 2: Base-Case & NPV Sensitivity (a)Calculate the base-case operating cash flow. (Do not round your intermediate calculations.) (Click to select) (b)Calculate the base-case NPV. (Do not round your intermediate calculations.) (Click to select) (c) What is the sensitivity/elasticity of NPV to changes in the sales figure? Recall from your economics class that an elasticity measures a percentage change in one variable due to a percentage change in another. So simply increase sales quantity by 1 percent, calculate the new NPV, and then calculate the percentage change in the NPV. (Do not round your intermediate calculations.) (Click to select) ces 3: Sensitivity of OCF Requirement (a)In addition to NPV, we can calculate the sensitivity of other things, such as OCF. What is the sensitivity of base-case OCF to changes in the variable cost? Estimate the sensitivity by increasing variable costs by 10%. (Do not round your intermediate calculations.) (Click to select) (b)Based on this sensitivity, estimate the change in OCF (in dollars) given a 15% decrease in the variable costs? (Do not round your intermediate calculations.) (Click to select)
Expert Answer:
Answer rating: 100% (QA)
We are evaluating a project that costs 908000 has an 9year life and has no salvage value Assume that depreciation is straightline to zero over the lif... View the full answer
Related Book For
Corporate Finance Core Principles and Applications
ISBN: 978-0077905200
3rd edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Bradford
Posted Date:
Students also viewed these finance questions
-
We are evaluating a project that costs $804,000, has an eight-year life, and has no salvage value . Assume that depreciation is straight-line to zero over the life of the project. Sales are projected...
-
We are evaluating a project that costs $585,000, has a six-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...
-
Sensitivity Analysis and Break-Even We are evaluating a project that costs $936,000, has an eight-year life, and has no salvage value . Assume that depreciation is straight-line to zero over the life...
-
An abc-sequence balanced three-phase wye-connected source supplies power to a balanced wye-connected load. The line impedance per phase is 1 + j10, and the load impedance per phase is 20 + j20. If...
-
It been over the year that Apple Inc. business strategies adopted by the company have been then main elements of its survival and success in the market. The company has been acknowledging for...
-
A key hospital outcome measure of clinical performance is length of stay (LOS); that is, the number of days a patient is hospitalized. For patients at one hospital with acute myocardial infarction...
-
Is a winwin situation the only practical way to move business towards sustainability?
-
In Problem 14.37, NO 2 transport by diffusion in a stagnant atmosphere was considered for steady-state conditions. However, the problem is actually time dependent, and a more realistic approach would...
-
John is an employee at a publishing company in Toronto. He has access to copyrighted materials that the company has invested time and resources into creating, including digital books and other...
-
Fill in the missing values in the table below: Nominal Interest Real Interest Rate Inflation ate 4 3 12 |
-
Consider the following set of activities. Immediate Predecessors Activity ABCDEFGHLIKL Activity ABCDEFGHLIKL ..440AHFFSHS J A, B A. B C. D D I recommend developing a network for this project first....
-
Find the vertex of the graph. f ( x ) = 2 x ^ 2 3 x + 5
-
What role does emotional intelligence play in cultivating a cohesive and high-performing team environment ? Explain
-
Develop an essay where you will evaluate the basic concepts of the micro theory of economics. To do this, you must review content on the topic in academic literary resources. Provide a minimum of 2...
-
Calculate the missing information. Round dollars to the nearest cent and percents to the nearest tenth of a percent. Item Cost Amount of Markup Selling Price (in $) Percent Markup Based on Cost Bar...
-
Find a basis for P which contains the set of polynomials { t ^ 2 + 1 . t - 1 } .
-
Question 1 (15 marks) A large steel plate is being lowered into position by a crane and is attached to the crane via a cable sling, see Figure Q1. It can be considered to be in equilibrium. The steel...
-
The power company must generate 100 kW in order to supply an industrial load with 94 kW through a transmission line with 0.09 resistance. If the load power factor is 0.83 lagging, find the...
-
Use the option quote information shown here to answer the questions that follow. The stock is currently selling for $73. a. Are the call options in the money? What is the intrinsic value of an RWJ...
-
One potential criticism of the internal rate of return technique is that there is an implicit assumption that this technique assumes the intermediate cash flows of the project are reinvested at the...
-
Consider the following cash flows on two mutually exclusive projects. The cash flows of Project A are expressed in real terms while those of Project B are expressed in nominal terms. The appropriate...
-
Justify the statement: Osmosis is of paramount importance in biological systems.
-
The freezing point of pure benzene is \(5.44^{\circ} \mathrm{C}\) and that of the solution containing \(2.092 \mathrm{~g}\) of benzaldehyde in \(100 \mathrm{~g}\) of benzene is \(4.44^{\circ}...
-
The molality of dissolved gases in water at \(0^{\circ} \mathrm{C}\) and \(1 \mathrm{~atm}\) is \(1.29 \times 10^{-3}\). The decrease in volume during melting of ice is \(0.0907 \mathrm{cc} /...
Study smarter with the SolutionInn App