problem related to accounting Consider the following project which costs $2,000 witha salvage value of zero in 4 years. The project willproduce a new widget which will be sold for $140 andhas variable costs of $110 per unit. The company hasfixed costs of $3,050 and a required return on projectsof 14.5%. If the company sells 210 units, what is thefirm's degree of leverage?

Explanation of Contribution Margin: Contribution margin is the difference between selling price and…

Answered: Consider the following project which…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Can you please answer the accounting question?
What is the firm's degree of leverage?
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)
Modern Artifacts can produce keepsakes that will be sold for $130 each. Nondepreciation fixed costs are $2,000 per year, and variable costs are $80 per unit. The initial investment of $6,000 will be depreciated straight-line over its useful life of 3 years to a final value of zero, and the discount rate is 14%. a. What is the degree of operating leverage of Modern Artifacts when sales are $11,050? (Do not round intermediate calculations. Round your answer to 2 decimal places.) b. What is the degree of operating leverage when sales are $17,810? (Do not round intermediate calculations. Round your answer to 2 decimal places.) c. Why is operating leverage different at these two levels of sales?
Modern Artifacts can produce keepsakes that will be sold for $240 each. Nondepreciation fixed costs are $3,600 per year, and variable costs are $140 per unit. The initial investment of $10,800 will be depreciated straight-line over its useful life of 3 years to a final value of zero, and the discount rate is 8%. a. What is the degree of operating leverage of Modern Artifacts when sales are $17,760? (Do not round Intermedlate calculatilons. Round your answer to 2 decimal places.) Degree of operating leverage b. What is the degree of operating leverage when sales are $35.280? (Do not round Intermedlate calculations. Round your answer to 2 decimal places.) Degree of operating leverage c. Why is operating leverage different at these two levels of sales? Degree of operating leverage is when profits are
Modern Artifacts can produce keepsakes that will be sold for $100 each. Nondepreciation fixed costs are $1,100 per year, and variable costs are $74 per unit. The initial investment of $4,800 will be depreciated straight-line over its useful life of five years to a final value of zero, and the discount rate is 10%. a. What is the degree of operating leverage of Modern Artifacts when sales are $8,500? Note: Round your answer to 1 decimal place. b. What is the degree of operating leverage when sales are $14,500? Note: Round your answer to 1 decimal place. a. Degree of operating leverage b. Degree of operating leverage times times
The initial cost of one customized machine is $675,000 with an annual operating cost of $14,800, and a life of 4 years. The machine will be worthless and replaced at the end of its life. What is the equivalent annual cost of this machine if the required rate of return is 14.5 percent and we ignore taxes? USING EXCEL FORMULAS
Modern Artifacts can produce keepsakes that will be sold for $120 each. Nondepreciation fixed costs are $1,800 per year, and variable costs are $70 per unit. The initial investment of $5,400 will be depreciated straight-line over its useful life of 6 years to a final value of zero, and the discount rate is 18%. a. What is the degree of operating leverage of Modern Artifacts when sales are $7,440? b. What is the degree of operating leverage when sales are $12,000?
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
Modern Artifacts can produce keepsakes that will be sold for $270 each. Nondepreciation fixed costs are $3,200 per year, and variable costs are $190 per unit. The initial investment of $9,600 will be depreciated straight-line over its useful life of 8 years to a final value of zero, and the discount rate is 16%. a. What is the degree of operating leverage of Modern Artifacts when sales are $16,740? (Do not round intermediate calculations. Round your answer to 2 decimal places.) b.What is the degree of operating leverage when sales are $28,890? (Do not round intermediate calculations. Round your answer to 2 decimal places.) c. Why is operating leverage different at these two levels of sales?
Modern Artifacts can produce keepsakes that will be sold for $270 each. Nondepreciation fixed costs are $3,200 per year, and variable costs are $190 per unit. The initial investment of $9,600 will be depreciated straight-line over its useful life of 8 years to a final value of zero, and the discount rate is 16%. a.What is the degree of operating leverage of Modern Artifacts when sales are $16,740? (Do not round intermediate calculations. Round your answer to 2 decimal places.) b. What is the degree of operating leverage when sales are $28,890? (Do not round intermediate calculations. Round your answer to 2 decimal places.) c. Why is operating leverage different at these two levels of sales? Degree of operating leverage is _____ when profits are _____.

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