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a. Calculate the accounting and cash break-even points. Answer: QA 1,104,000 units; Qc880,000 units b. Calculate the DOL, DFL, and DCL (Do not use the equations and do your own change in sales). Answer: DOL-2.07; DFL-1.07; DCL-2.21

a. Calculate the accounting and cash break-even points. Answer: QA 1,104,000 units; Qc880,000 units b. Calculate the DOL, DFL, and DCL (Do not use the equations and do your own change in sales). Answer: DOL-2.07; DFL-1.07; DCL-2.21

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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need help understanding how to get the EBIT. it says fixed cost is 22m but does not seem right .

 
understanding of DOL, DFL, DCL, break-even points, and real options. 1. A 10-year steel pipe-producing project requires $64 million in upfront investment (all in depreciable assets), $25 million of which is borrowed capital at an interest rate of 5.20% per year. The expected pipe sales are 1,700,000 pipes per year. The expected price per pipe is $375 and the variable cost is $350 per unit. The fixed costs excluding depreciation are expected to be $22 million per year for ten years. The upfront investment will be depreciated on a straight-line basis for the 10-year life of the project to $8 million book value. The expected salvage value of the assets is $12 million. The tax rate is 28% and the RRR applicable to the project is 12%. a. Calculate the accounting and cash break-even points. Answer: QA = 1,104,000 units; Qc = 880,000 units b. Calculate the DOL, DFL, and DCL (Do not use the equations and do your own change in sales). Answer: DOL-2.07; DFL-1.07; DCL-2.21
Transcribed Image Text:understanding of DOL, DFL, DCL, break-even points, and real options. 1. A 10-year steel pipe-producing project requires $64 million in upfront investment (all in depreciable assets), $25 million of which is borrowed capital at an interest rate of 5.20% per year. The expected pipe sales are 1,700,000 pipes per year. The expected price per pipe is $375 and the variable cost is $350 per unit. The fixed costs excluding depreciation are expected to be $22 million per year for ten years. The upfront investment will be depreciated on a straight-line basis for the 10-year life of the project to $8 million book value. The expected salvage value of the assets is $12 million. The tax rate is 28% and the RRR applicable to the project is 12%. a. Calculate the accounting and cash break-even points. Answer: QA = 1,104,000 units; Qc = 880,000 units b. Calculate the DOL, DFL, and DCL (Do not use the equations and do your own change in sales). Answer: DOL-2.07; DFL-1.07; DCL-2.21
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