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Corporate Fin Focused Approach

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter11: Cash Flow Estimation And Risk Analysis

Section: Chapter Questions

Problem 8P

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Consider the following project which costs $2,000 with a salvage value of zero
in 4 years. The project will produce a new widget which will be sold for $140
and has variable costs of $110 per unit. The company has fixed costs of
$3,050 and a required return on projects of 14.5%. If the company sells 210
units, what is the firm's degree of leverage?

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What is the firm's degree of leverage?
Consider the following project which costs $2,000 with a salvage value of zero in 4 years. The project will produce a new widget which will be sold for $140 and has variable costs of $110 per unit. The company has fixed costs of $3,050 and a required return on projects of 14.5%. If the company sells 210 units, what is the firm's degree of leverage? Dol
Consider the following project which costs $2,000 with a salvage value of zero in 4 years. The project will produce a new widget which will be sold for $140 and has variable costs of $110 per unit. The company has fixed costs of $3,050 and a required return on projects of 14.5%. If the company sells 210 units, what is the firm's degree of leverage?
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A company is considering a project which would involve purchasing amachine for $20,000 which will have no value at the end of the project.It will be used to produce a product which will have sales of 600 unitsper year for 4 years. The sales price per unit will be $50, the variablecosts per unit $20 and the incremental fixed costs of the project will be$10,000 per annum. These are all expressed in real terms and will besubject to inflation.Sales will inflate at 5% per annum, variable costs at 6% per annumand fixed costs at 7% per annum.The cost of capital is 15%Required:-Calculate NPV of the project
Modern Artifacts can produce keepsakes that will be sold for $20 each. Nondepreciation fixed costs are $200 per year, and variable costs are $30 per unit. The initial investment of $600 will be depreciated straight-line over its useful life of 6 years to a final vlaue of zero, and the discount rate is 15%. a). What is the degree of operating leverage of Modern Artifacts when sales are $640?(Don't round intermediate calculations. Round answer to 2 decimal places) b). What is the degree of operating leverage when sales are $1,620? (Don't round intermediate calculations, round final answer to 2 decimal places)
Dinshaw Company is considering the purchase of a new machine. The invoice price of the machine is $87,306, freight charges are estimated to be $2,620, and installation costs are expected to be $7,370. The annual cost savings are expected to be $14,980 for 11 years. The firm requires a 20% rate of return. Ignore income taxes. What is the internal rate of return on this investment? Internal rate of return % Round to 0 decimal placese
You are considering a proposal to produce and market a new sluffing machine. The most likely outcomes for the project are as follows: Expected sales: 30,000 units per year Unit price: $50 Variable cost: $30 Fixed cost: $300,000 The project will last for 10 years and requires an initial investment of $1 million, which will be depreciated straight-line over the project life to a final value of zero. The firm's tax rate is 30%, and the required rate of return is 12%. However, you recognize that some of these estimates are subject to error. In one scenario a sharp rise in the dollar could cause sales to fall 30% below expectations for the life of the project and, if that happens, the unit price would probably be only $40. The good news is that fixed costs could be as low as $200,000, and variable costs would decline in proportion to sales. a. What is project NPV if all variables are as expected? Note: Do not round intermediate calculations. Enter your answer in thousands not in millions…
Pharoah Inc. produces modern light fixtures that sell for $160 per unit. The firm's management is considering purchasing a high- capacity manufacturing machine. If the high-capacity machine is purchased, then the firm's annual cash fixed costs will be $71,000 per year, variable costs will be $80 per unit, and annual depreciation and amortization expenses will equal $20,000. If the machine is not purchased, annual cash fixed costs will be $15,000, variable costs will be $130 per unit, and annual depreciation and amortization expenses will equal $11,000. What is the minimum level of unit sales necessary in order for EBIT with the high-capacity machine to be higher than EBIT without that machine? Minimum level of sales required units
Webmasters.com has developed a powerful new server that would be used for corporations’ Internet activities. It would cost $10 million at Year 0 to buy the equipment necessary to manufacture the server. The project would require net working capital at the beginning of each year in an amount equal to 10% of the year’s projected sales; for example, NWC0 10% Sales1. The servers would sell for $24,000 per unit, and Webmasters believes that variable costs would amount to $17,500 per unit. After Year 1, the sales price and variable costs will increase at the inflation rate of 3%. The company’s non-variable costs would be $1 million in Year 1 and would increase with inflation. The server project would have a life of 4 years. If the project is undertaken, it must be continued for the entire 4 years. Also, the project’s returns are expected to be highly correlated with returns on the firm’s other assets. The firm believes it could sell 1,000 units per year. The equipment would be depreciated…
A firm is considering purchasing equipment that will reduce annual costs by P 40,000. The equipment costs P 300,000 and has a salvage value of P 50,000 and a life of 7 yrs. The annual maintenance cost is P 6,000. While not in use by the firm, the equipment can be rented to others to generate an income of P 10,000 per year. If money can be invested for an 8% return, is the firm justified in buying the equipment? Use annual cost method.

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