User Account

All Pages

Degree of operating leverage at accounting break-even point

Assignment Help Financial Management
Reference no: EM13946887

We are evaluating a project that costs $520,000, 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 73,000 units per year. Price per unit is $45, variable cost per unit is $30, and fixed costs are $840,000 per year. The tax rate is 35 percent, and we require a return of 10 percent on this project.

a-1 Calculate the accounting break-even point. (Do not round intermediate calculations. Round your answer to the nearest whole number, e.g., 32.) Break-even point units

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

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.) Cash flow $ NPV $

b-2 What is the sensitivity of NPV to changes in the sales figure? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) ΔNPV/ΔQ $

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

Reference no: EM13946887

Questions Cloud

Debt-to-equity ratio-use the pure-play method : Jay Company has a debt-to-equity ratio of 2.0. Jay is evaluating the cost of equity for a project in the same line of business as Cass Company and will use the pure-play method with Cass as the comparable firm. Cass has a beta of 1.2 and a debt-to-eq..
Annualized return from these two investments : Suppose you have $55,000 to invest. You’re considering Miller-Moore Equine Enterprises (MMEE), which is currently selling for $110 per share. You also notice that a call option with a $110 strike price and six months to maturity is available. The pre..
Contract size for platinum futures : The contract size for platinum futures is 50 troy ounces. Suppose you need 200 troy ounces of platinum and the current futures price is $1,130 per ounce. How many contracts do you need to purchase? How much will you pay for your platinum? What is you..
Apply IRR rule for capital budgeting decision in this case : You have an investment project that has two IRRs: 5% and 15%. Your required rate of return is 20%. What should you do? Please Explain. Your company considers several independent projects. All of them have normal cash flows. Will it be correct to appl..
Degree of operating leverage at accounting break-even point : We are evaluating a project that costs $520,000, has a six-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. What is the sensitivity of NPV to changes in the sales figure? What is the..
Considering is expected to generate an operating cash flow : A new project you are considering is expected to generate an operating cash flow of $45,620 and will initially free up to 22,000 in net working capital. purchases of fixed assets costing 68,800 will be required to start up the project. what is the to..
Present worth of software maintenance cost : A company wants to know the present worth of a software maintenance cost of $2,000 per year starting next year and expected to increase by 8.5% each year compounded interest for the next 7 years. What type of problem would this be for the engineer wh..
What is the value of one right : Frank Enterprises is sponsoring a rights offering wherein every shareholder will receive one right for every share of stock they own. The new shares in this offering are priced at $25 plus 5 rights. The current market price of Frank Enterprises stock..
Make a single investment now instead of spending : If a company wanted to make a single investment now instead of spending $25,000 five years from now, how much would the investment be at an interest rate of 12% compounded per year? Calculate nearest to value.

Reviews

Write a Review

Financial Management Questions & Answers

  Market rate of return on similar securities

Apple currently does not pay a dividend and they have announced to the market that they will not pay a dividend for the next ten years. However, analysts expect that they will pay their first dividend of $1.89 in eleven years and they feel that the c..

  Security a has a beta of 10 and an expected return of 12

security a has a beta of 1.0 and an expected return of 12. security b has a beta of 0.75 and an expected return of 11.

  What were Wallaces total long-term debt

What were Wallaces total long-term debt and total liabilities in 2013 - Find the best-case and worst-case NPVs. What is the probability of occurrence of the worst case if the cash flows are perfectly dependent

  What effective annual rate results from daily compounding

What effective annual rate results from daily compounding of 8%? Suppose that you have a mortgage on your house. You make monthly payments. Your bank quotes APR equal 8.5% per year. What is your effective annual rate?

  How much capital remains at the end of five years

A loan of 100,000 is payable over five years with monthly payments of 60,000 commencing one month after the inception date. The loan repayment is 2,000 per month and the nominal rate 10 per cent. How much capital remains at the end of five years? If ..

  Compute the net present value of this project

Northwest Industries is considering a project with the following cash flows: Initial Outlay=$2,800,000 After-tax operating cash flows for years 1-4=$850,000 per year, Additional after-tax terminal cash flow at end of Year 4=$125,000 Compute the net p..

  Which rate of return does the investor expect to receive

A company's common stock is currently selling for $54 per share. Last year, the company paid dividends of $2.98 per share. The projected growth at a rate of dividends for this stock is 4.93%. Which rate of return does the investor expect to receive o..

  What is the price of the combined test assuming

When the tests are combined, only one syringe, form, and sterile ban­dage will be used. Furthermore, only one charge for breakage/losseswill apply. Two blood vials are required, and reagent costs will remainthe same (reagents from all three tests ..

  Describe several different fixed costs and variable costs

First, describe several different fixed costs and variable costs associated with operating an automobile. Next, assume that you would like to travel from Los Angeles to New York City by either car or plane. Which costs would you take into account in ..

  Valuation of a constant growth stock

A stock is expected to pay a dividend of $3.00 the end of the year (that is, D1 = $3.00), and it should continue to grow at a constant rate of 4% a year. If its required return is 14%, what is the stock's expected price 1 year from today? Round your ..

  What is the amount of the initial cash flow at year

The Erley Equipment Company purchased a machine 5 years ago at a cost of $80,000. The machine had an expected life of 10 years at the time of purchase, and it is being depreciated by the straight-line method by $8,000 per year. What are the increment..

  The required rate of return for equity investors

What would you estimate to be the required rate of return for equity investors if a stock sells for $60 and will pay $7.20 in dividend that is expected to grow at a constant rate of 4%?

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd