A proposed project has fixed costs of $86,000 per year. The operating cash flow at 8,200 units is $93,800. Ignore the effect of taxes. a. What is the degree of operating leverage? (Do not round intermediate calculations and round your answer to 4 decimal places, e.g., 32.1616.) b. If units sold rise from 8,200 to 8,700, what will be the new operating cash flow? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. If units sold rise from 8,200 to 8,700, what is the new degree of operating leverage? (Do not round intermediate calculations and round your answer to 4 decimal places, e.g., 32.1616.)

A proposed project has fixed costs of $86,000 per year. The operating cash flow at 8,200 units is $93,800. Ignore the effect of taxes. a. What is the degree of operating leverage? (Do not round intermediate calculations and round your answer to 4 decimal places, e.g., 32.1616.) b. If units sold rise from 8,200 to 8,700, what will be the new operating cash flow? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. If units sold rise from 8,200 to 8,700, what is the new degree of operating leverage? (Do not round intermediate calculations and round your answer to 4 decimal places, e.g., 32.1616.)

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

A Garry Manufacturing Company is considering a three-year project that has a cost of $75,000. The project will generate after-tax cash flows of $33,100 in Year 1, $31,500 in Year 2, and $31,200 in Year 3. Assume that the firm's proper rate of discount is 10% and that the firm's tax rate is 40%. What is the project's payback and outline any limitations in using the payback period method in selecting acceptable projects? Tetious Dimensions is introducing a new product that is expected to increase it net operating income by $775,000. Tetious Dimensions has a 21% marginal tax rate. This project will also produce $200,000 of depreciation per year. In addition, this project will cause the following changes: Without the Project With the Project Accounts Receivable $55,000 $89,000 Inventory $100,000…
A company is considering investing in a project whose present value without flexibility is 100 million. The project pays no dividends, and the initial investment required is 102 million. The appropriate cost of capital for the project is 20%. The risk-free rate is 5%. Every period the project cash flows either go up by a factor "u", or reduces by a factor "d". Use u = 2.2255 and d% = %3D 0.4493. a) Calculate the NPV of the project without the flexibility. b) Suppose the total investment of 102 million (present value) may be disaggregated into 3 installments, as follows: 52 million in year 0, 21 million in year 1, and 33.075 million in year 2. In any year management has the option to "default" on its planned investment, at which point the project is terminated. What is the NPV for the project with this default option? c) What is the value of this default option?
Randall's Ales & Porters S.A., is considering expanding into Costa Rica. As an incentive, Costa Rica agrees not to charge the company any taxes. The project has the following estimated data: price = $94 per unit variable costs = $50.76 per unit fixed costs = $7,600 required return = 16 percent initial investment = $11,000 life = three years depreciable life = three years, straight-line. Required: (a)What is the accounting break-even quantity? (Do not round your intermediate calculations.) (Click to select) ♥ (b)What is the cash break-even quantity? (Do not round your intermediate calculations.) (Click to select) ♥ (c) What is the financial break-even quantity? (Do not round your intermediate calculations.) (Click to select) ♥
ou estimate that your cattle farm will generate $1 million of profits on sales of $5.7 million under normal economic conditions and that the degree of operating leverage is 8.a. What will profits be if sales turn out to be $5.0 million? (Negative amount should be indicated by a minus sign. Round your answer to 1 decimal place.) b. What if they are $6.4 million? (Round your answer to 1 decimal place.)
Modern Artifacts can produce keepsakes that will be sold for $280 each. Nondepreciation fixed costs are $5, 000 per year, and variable costs are $260 per unit. The initial investment of $13,000 will be depreciated straight-line over its useful life of five years to a final value of zero, and the discount rate is 10%. What is the accounting break-even level of sales if the firm pays no taxes? What is the NPV break-even level of sales if the firm pays no taxes? Note: Do not round intermediate calculations. Round your final answer to the nearest whole number. What is the accounting break-even level of sales if the firm's tax rate is 20%? What is the NPV break-even level of sales if the firm's tax rate is 20%? Note: Do not round intermediate calculations. Round your final answer to the nearest whole number. What is the degree of operating leverage for the firm for the NPV break-even points when the tax rate is 0% and when the tax rate is 20%? Note: Round intermediate calculation to the…
Management of Sandhill Mints, a confectioner, is considering purchasing a new jelly bean-making machine at a cost of $312,500. They project that the cash flows from this investment will be $113,000 for the next seven years. If the appropriate discount rate is 14 percent, what is the NPV for the project? (Enter negative amounts using negative sign, e.g. -45.25. Do not round discount factors. Round other intermediate calculations and final answer to 0 decimal places, e.g. 1,525.) NPV=
6b) Kalvino Inc. has a new five-year project that produces high-end raincoats. The initial investment equals $85,000. The estimated selling price equals $102 per unit and variable costs equal $80 per unit. Fixed costs equal $29,000. Investors do require a 15% return. Calculate the cash break-even quantity? Interpret your answer. Calculate the accounting break-even quantity? Interpret your answer. Calculate the financial break-even quantity? Interpret your answer. What is the degree of operating leverage for this project? Assuming that sales are estimated at $249,900.
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 _____.
You are evaluating a project that costs $79,000 today. The project has an inflow of $168,000 in one year and an outflow of $69,000 in two years. What are the IRRs for the project? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) Smallest Largest IRR IRR % % What discount rate results in the maximum NPV for this project? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
You are evaluating a project that costs $69,000 today. The project has an inflow of $148,000 in one year and an outflow of $59,000 in two years. What are the IRRs for the project? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) What discount rate results in the maximum NPV for this project? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
The most likely outcomes for a particular project are estimated as follows: Unit price Variable cost $ 49 21 $309, 000 29, 200 uni ts per year Fixed cost Expected sales However, you recognize that some of these estimates are subject to error. Suppose that each variable may turn out to be either 10% higher or 10% lower than the initial estimate. The project will last for 13 years and requires an initial investment of $0.99 million, which will be depreciated straight-line over the project life to a final value of zero. The firm's tax rate is 35% and the required rate of return is 17%. What is project NPV in the "best case" scenario, that is, assuming all variables take on the best possible value? (Round your answer to the nearest whole dollar amount.) NPV in the "best case" scenario 1961296 What about the "worst case" scenario? (Use the minus sign for negative values. Round your answer to the nearest whole dollar amount.) NPV in the "worst case" scenario -148345
You estimate that your cattle farm will generate $0.15 million of profits on sales of $3 million under normal economic conditions and that the degree of operating leverage is 2. a. What will profits be if sales turn out to be $1.5 million? (Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations. Enter your answers in millions.) Required: profit will to Millions b. What will profits be if sales turn out to be $4.5 million? (Do not round intermediate calculations. Enter your answers in millions rounded to 1 decimal place.) Required: profit will to Millions