Fundamentals of Corporate Finance
11th Edition
ISBN: 9780077861704
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Bradford D Jordan Professor
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Textbook Question
Chapter 11, Problem 9QP
Calculating Break-Even [LO3] A project has the following estimated data: price = $54 per unit; variable costs = $36 per unit; fixed costs = $19,300; required return = 12 percent; initial investment = $26,800; life = four years. Ignoring the effect of taxes, what is the accounting break-even quantity? The cash break-even quantity? The financial break-even quantity? What is the degree of operating leverage at the financial break-even level of output?
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Please don't use Ai solution
ng
Equipment is worth $998,454. It is expected to produce regular cash flows of $78,377 per year for 20 years and a special cash flow of
$34,800 in 20 years. The cost of capital is X percent per year and the first regular cash flow will be produced in 1 year. What is X?
Input instructions: Input your answer as the number that appears before the percentage sign. For example, enter 9.86 for 9.86% (do
not enter .0986 or 9.86%). Round your answer to at least 2 decimal places.
percent
3 years ago, you invested $6,700. In 5 years, you expect to have $12,201. If you expect to earn the same annual return after 5 years from today as the annual return implied from the past and expected values given in the problem, then in how many years from today do you expect to have $25,254?
Chapter 11 Solutions
Fundamentals of Corporate Finance
Ch. 11.1 - Prob. 11.1ACQCh. 11.1 - What are some potential sources of value in a new...Ch. 11.2 - Prob. 11.2ACQCh. 11.2 - What are the drawbacks to the various types of...Ch. 11.3 - How are fixed costs similar to sunk costs?Ch. 11.3 - What is net income at the accounting break-even...Ch. 11.3 - Why might a financial manager be interested in the...Ch. 11.4 - If a project breaks even on an accounting basis,...Ch. 11.4 - If a project breaks even on a cash basis, what is...Ch. 11.4 - Prob. 11.4CCQ
Ch. 11.5 - What is operating leverage?Ch. 11.5 - How is operating leverage measured?Ch. 11.5 - Prob. 11.5CCQCh. 11.6 - What is capital rationing? What types are there?Ch. 11.6 - Prob. 11.6BCQCh. 11 - Prob. 11.1CTFCh. 11 - Marcos Entertainment expects to sell 84,000...Ch. 11 - Delta Tool has projected sales of 8,500 units at a...Ch. 11 - What is true for a project if that project is...Ch. 11 - A capital-intensive project is one that has a...Ch. 11 - Pavloki, Inc., has three proposed projects with...Ch. 11 - Forecasting Risk [LO1] What is forecasting risk?...Ch. 11 - Sensitivity Analysis and Scenario Analysis [LO1,...Ch. 11 - Prob. 3CRCTCh. 11 - Operating Leverage [LO4] At one time at least,...Ch. 11 - Operating Leverage [LO4] Airlines offer an example...Ch. 11 - Prob. 6CRCTCh. 11 - Prob. 7CRCTCh. 11 - Prob. 8CRCTCh. 11 - Prob. 9CRCTCh. 11 - Scenario Analysis [LO2] You are at work when a...Ch. 11 - Calculating Costs and Break-Even [LO3] Night...Ch. 11 - Prob. 2QPCh. 11 - Scenario Analysis [LO2] Sloan Transmissions, Inc.,...Ch. 11 - Sensitivity Analysis [LO1] For the company in the...Ch. 11 - Sensitivity Analysis and Break-Even [LO1, 3] We...Ch. 11 - Prob. 6QPCh. 11 - Prob. 7QPCh. 11 - Calculating Break-Even [LO3] In each of the...Ch. 11 - Calculating Break-Even [LO3] A project has the...Ch. 11 - Using Break-Even Analysis [LO3] Consider a project...Ch. 11 - Calculating Operating Leverage [LO4] At an output...Ch. 11 - Leverage [LO4] In the previous problem, suppose...Ch. 11 - Operating Cash Flow and Leverage [LO4] A proposed...Ch. 11 - Cash Flow and Leverage [LO4] At an output level of...Ch. 11 - Prob. 15QPCh. 11 - Prob. 16QPCh. 11 - Sensitivity Analysis [LO1] Consider a four-year...Ch. 11 - Operating Leverage [LO4] In the previous problem,...Ch. 11 - Project Analysis [LO1, 2, 3, 4] You are...Ch. 11 - Project Analysis [LO1, 2] McGilla Golf has decided...Ch. 11 - Prob. 21QPCh. 11 - Sensitivity Analysis [LO1] McGilla Golf would like...Ch. 11 - Break-Even Analysis [LO3] Hybrid cars are touted...Ch. 11 - Break-Even Analysis [LO3] In an effort to capture...Ch. 11 - Prob. 25QPCh. 11 - Operating Leverage and Taxes [LO4] Show that if we...Ch. 11 - Scenario Analysis [LO2] Consider a project to...Ch. 11 - Sensitivity Analysis [LO1] In Problem 27, suppose...Ch. 11 - Prob. 29QPCh. 11 - Prob. 30QP
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- 4 years ago, you invested $3,600. In 2 years, you expect to have $7,201. If you expect to earn the same annual return after 2 years from today as the annual return implied from the past and expected values given in the problem, then in how many years from today do you expect to have $10,022? Input instructions: Round your answer to at least 2 decimal places. yearsarrow_forwardSince ROE can sometimes be boosted artificially through financial leverage, do you think it would be more beneficial for investors to rely on a combination of ROE and other financial health indicators, such as the debt-to-equity ratio or interest coverage ratio, when assessing a stock's long-term potential?arrow_forwardGiven that Merck and Pfizer both face revenue risks from patent expirations, how do you think financial managers at these companies should adjust their capital structure to maintain stability and investor confidence?arrow_forward
- Don't used hand raiting and don't used Ai solutionarrow_forwardJohn works for a fixed income hedge fund. Your fund invests in $100 million in mortgage-backed-bonds (MBS) with a duration of 10. He finances these bonds with $2 million in investor capital and $98 million of overnight repurchase agreements (required haircut=2%) with an interest rate of 1%. After hours, negative news comes out on the evening news that increases yields on MBS by 25 basis points. Moreover, effective tomorrow, because of this bad news, repurchase agreement lenders will now require a haircut of 3% to lend to you via repurchase agreements with your MBS as collateral. Assuming he receives no interest payments from your MBS, how much cash does he need to not default on today’s repurchase agreement and to keep the position open for one more day tomorrow? Please provide calculations in excel.arrow_forward220 6-1. (Expected return and risk) Universal Corporation is planning to invest in a secu- LO1 LO2 rity that has several possible rates of return. Given the following probability distribu- tion of returns, what is the expected rate of return on the investment? Also, compute the standard deviations of the returns. What do the resulting numbers represent? PROBABILITY 0.10 0.20 0.30 RETURN -10% 5% 0.40 10% 25% 6-2. (Average expected return and risk) Given the holding-period returns shown here, calculate the average returns and the standard deviations for the Kaifu Corporation Myb and for the market. MONTH 1 2 3 KAIFU CORP. 4% 6% 0% 2% MARKET 2% 3% 1% -1% 6-3. (Expected rate of return and risk) Carter, Inc. is evaluating a security. Calculate the investment's expected return and its standard deviation. PROBABILITY 0.15 RETURN 6% 0.30 9% 0.40 10% 0.15 15% PART 2 The Valuation of Financial Assets 6-4. (Expected rate of return and risk) Summerville, Inc. is considering an investment in one of…arrow_forward
- 6-14. (Expected return, standard deviation, and capital asset pricing model) The following LO5 are the end-of-month prices for both the Standard & Poor's 500 Index and Nike's common stock. a. Using the data here, calculate the holding-period returns for each of the months. NIKE S&P 500 INDEX 2017 January $52.90 $2,279 February 57.16 2,364 March 55.73 2,363 April 55.41 2,384 May 52.99 2,412 June 59.00 2,423 July 59.05 2,470 August 52.81 2,472 September 51.85 2,519 October 54.99 2,575 November 60.42 2,648 December 62.55 2,674 2018 January 68.22 2,824 b. Calculate the average monthly return and the standard deviation for both the S&P 500 and Nike. 222 PART 2 • The Valuation of Financial Assets c. Develop a graph that shows the relationship between the Nike stock returns and the S&P 500 Index. (Show the Nike returns on the vertical axis and the S&P 500 Index returns on the horizontal axis as done in Figure 6-5.) d. From your graph, describe the nature of the relationship between Nike stock…arrow_forwardrequired rates of return for the three securities? 6-23. (Portfolio beta and security market line) You own a portfolio consisting of the ☑ stocks below: PERCENTAGE OF STOCK OR SECURITY PORTFOLIO BETA EXPECTED RETURN 1 20% 1.00 12% 2 30% 0.85 8% 3 15% 1.20 12% 25% 0.60 7% 5 10% 1.60 16% The risk-free rate is 3 percent. Also, the expected return on the market portfolio is 11 percent. a. Calculate the expected return of your portfolio. (Hint: The expected return of a portfolio equals the weighted average of the individual stocks' expected returns, where the weights are the percentage invested in each stock.) b. Calculate the portfolio beta. c. Given the foregoing information, plot the security market line on paper. Plot the stocks from your portfolio on your graph. d. From your plot in part (c), which stocks appear to be your winners and which ones appear to be your losers? e. Why should you consider your conclusion in part (d) to be less than certain? 6-24. (Portfolio beta) Assume you…arrow_forwardWizzy Wigs is an unleveraged firm with $80 million in total assets, 2 million shares outstanding, and $15 million in EBIT. The shares price is $40, tax adjusted cost of debt 4.61%, and corporate tax rate of 21%. What are the returns on equity (ROEs) for the firm if it shifts to a 0.75 debt-to-equity ratio and for an individual with 700 shares who created homemade leverage at the same DE ratio? ◻ firm 25.61%; inv. 24.99% firm 18.24%; inv. 19.46% firm 38.59%; inv. 35.53% firm 23.19%; inv. 22.46% firm 30.07%; inv. 30.19% Please show work on excel spreadsheetarrow_forward
- You are running a hot Internet company. Analysts predict that its earnings will grow at 20% per year for the next 9 years. After that, as competition increases, earnings growth is expected to slow to 4% per year and continue at that level forever. Your company has just announced earnings of $4 million. What is the present value of all future earnings if the interest rate is 9%? (Assume all cash flows occur at the end of the year.) The present value of all future earnings is million. (Round to two decimal places.)arrow_forward3. Losses for an insurance company next year are estimated to be 100 million with standard deviation 250 million. Using lognormal and two-parameter Pareto distributions to obtain the VaR at the 95%, 97.5%, 99% security levels. Comment on your findings.arrow_forwardA company sold 4 million shares in its IPO, at a priceof $18.50 per share. Management negotiated a fee(the underwriting spread) of 7% on this transaction.What was the dollar cost of this fee?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Essentials Of InvestmentsFinanceISBN:9781260013924Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.Publisher:Mcgraw-hill Education,
Foundations Of FinanceFinanceISBN:9780134897264Author:KEOWN, Arthur J., Martin, John D., PETTY, J. WilliamPublisher:Pearson,
Fundamentals of Financial Management (MindTap Cou...FinanceISBN:9781337395250Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i...FinanceISBN:9780077861759Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan ProfessorPublisher:McGraw-Hill Education
Essentials Of Investments
Finance
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:9780134897264
Author:KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:Pearson,
Fundamentals of Financial Management (MindTap Cou...
Finance
ISBN:9781337395250
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i...
Finance
ISBN:9780077861759
Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:McGraw-Hill Education
What is WACC-Weighted average cost of capital; Author: Learn to invest;https://www.youtube.com/watch?v=0inqw9cCJnM;License: Standard YouTube License, CC-BY