Adequate information: Cost of the project is $ 720 , 000 with 4 year life and no salvage value. Depreciation is a straight line to zero. Expected sales are 380 units per year. Price per unit is $ 17 , 400 . Variable cost is $ 14 , 100 per unit. Fixed cost is $ 680 , 000 per year. Required rate of return is 15 % . Tax rate is 21 % . To compute: Upper and Lower bounds for the projections, base-case NPV, best-case, and worst-case scenarios. Introduction: Lower bound is a value that is each data set's element's value minus one or the same. An upper bound is a number that exceeds or is equal to each data element in a set. The current value of a future stream of payments from a business, project, or investment is determined using net present value, or NPV. The best-case scenario is any circumstance or result that could not possibly be better; the ideal result. The worst-case scenario takes into account the direst or extreme result that could occur in a particular circumstance.

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Answer 1

Question

Chapter 7, Problem 13QAP

A

Summary Introduction

Adequate information:

Cost of the project is $720,000 with 4 year life and no salvage value.

Depreciation is a straight line to zero.

Expected sales are 380 units per year.

Price per unit is $17,400 .

Variable cost is $14,100 per unit.

Fixed cost is $680,000 per year.

Required rate of return is 15% .

Tax rate is 21% .

To compute: Upper and Lower bounds for the projections, base-case NPV, best-case, and worst-case scenarios.

Introduction: Lower bound is a value that is each data set's element's value minus one or the same. An upper bound is a number that exceeds or is equal to each data element in a set. The current value of a future stream of payments from a business, project, or investment is determined using net present value, or NPV. The best-case scenario is any circumstance or result that could not possibly be better; the ideal result. The worst-case scenario takes into account the direst or extreme result that could occur in a particular circumstance.

B

Summary Introduction

Adequate information:

Base-case NPV was $682,536.67 when the fixed cost was $680,000 .

To compute: Evaluating the sensitivity of base-case NPV to changes in fixed costs.

Introduction: The current value of a future stream of payments from a business, project, or investment is determined using net present value, or NPV. Fixed costs are outlaid that a business must cover regardless of the particular commercial activities it engages in.

C

Summary Introduction

Adequate information:

Fixed cost is $680,000 per year

Contribution is $3,300

Depreciation is $180,000

To compute: Accounting break-even level of output

Introduction: The sales level at which a company makes exactly zero profits, given a set amount of fixed costs that it must cover each month, is known as the accounting breakeven point.

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National Bank currently has $500 million in transaction deposits on its balance sheet. The current reserve requirement is 10 percent, but the Federal Reserve is decreasing this requirement to 8 percent. Show the balance sheet of the Federal Reserve and National Bank if National Bank converts all excess reserves to loans, but borrowers return only 50 percent of these funds to National Bank as transaction deposits. Show the balance sheet of the Federal Reserve and National Bank if National Bank converts 75 percent of its excess reserves to loans and borrowers return 60 percent of these funds to National Bank as transaction deposits.

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Answer 2

Question

Chapter 7, Problem 13QAP

A

Summary Introduction

Adequate information:

Cost of the project is $720,000 with 4 year life and no salvage value.

Depreciation is a straight line to zero.

Expected sales are 380 units per year.

Price per unit is $17,400 .

Variable cost is $14,100 per unit.

Fixed cost is $680,000 per year.

Required rate of return is 15% .

Tax rate is 21% .

To compute: Upper and Lower bounds for the projections, base-case NPV, best-case, and worst-case scenarios.

Introduction: Lower bound is a value that is each data set's element's value minus one or the same. An upper bound is a number that exceeds or is equal to each data element in a set. The current value of a future stream of payments from a business, project, or investment is determined using net present value, or NPV. The best-case scenario is any circumstance or result that could not possibly be better; the ideal result. The worst-case scenario takes into account the direst or extreme result that could occur in a particular circumstance.

B

Summary Introduction

Adequate information:

Base-case NPV was $682,536.67 when the fixed cost was $680,000 .

To compute: Evaluating the sensitivity of base-case NPV to changes in fixed costs.

Introduction: The current value of a future stream of payments from a business, project, or investment is determined using net present value, or NPV. Fixed costs are outlaid that a business must cover regardless of the particular commercial activities it engages in.

C

Summary Introduction

Adequate information:

Fixed cost is $680,000 per year

Contribution is $3,300

Depreciation is $180,000

To compute: Accounting break-even level of output

Introduction: The sales level at which a company makes exactly zero profits, given a set amount of fixed costs that it must cover each month, is known as the accounting breakeven point.

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Answer 3

Question

Chapter 7, Problem 13QAP

A

Summary Introduction

Adequate information:

Cost of the project is $720,000 with 4 year life and no salvage value.

Depreciation is a straight line to zero.

Expected sales are 380 units per year.

Price per unit is $17,400 .

Variable cost is $14,100 per unit.

Fixed cost is $680,000 per year.

Required rate of return is 15% .

Tax rate is 21% .

To compute: Upper and Lower bounds for the projections, base-case NPV, best-case, and worst-case scenarios.

Introduction: Lower bound is a value that is each data set's element's value minus one or the same. An upper bound is a number that exceeds or is equal to each data element in a set. The current value of a future stream of payments from a business, project, or investment is determined using net present value, or NPV. The best-case scenario is any circumstance or result that could not possibly be better; the ideal result. The worst-case scenario takes into account the direst or extreme result that could occur in a particular circumstance.

B

Summary Introduction

Adequate information:

Base-case NPV was $682,536.67 when the fixed cost was $680,000 .

To compute: Evaluating the sensitivity of base-case NPV to changes in fixed costs.

Introduction: The current value of a future stream of payments from a business, project, or investment is determined using net present value, or NPV. Fixed costs are outlaid that a business must cover regardless of the particular commercial activities it engages in.

C

Summary Introduction

Adequate information:

Fixed cost is $680,000 per year

Contribution is $3,300

Depreciation is $180,000

To compute: Accounting break-even level of output

Introduction: The sales level at which a company makes exactly zero profits, given a set amount of fixed costs that it must cover each month, is known as the accounting breakeven point.

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Answer 4

Question

Chapter 7, Problem 13QAP

A

Summary Introduction

Adequate information:

Cost of the project is $720,000 with 4 year life and no salvage value.

Depreciation is a straight line to zero.

Expected sales are 380 units per year.

Price per unit is $17,400 .

Variable cost is $14,100 per unit.

Fixed cost is $680,000 per year.

Required rate of return is 15% .

Tax rate is 21% .

To compute: Upper and Lower bounds for the projections, base-case NPV, best-case, and worst-case scenarios.

Introduction: Lower bound is a value that is each data set's element's value minus one or the same. An upper bound is a number that exceeds or is equal to each data element in a set. The current value of a future stream of payments from a business, project, or investment is determined using net present value, or NPV. The best-case scenario is any circumstance or result that could not possibly be better; the ideal result. The worst-case scenario takes into account the direst or extreme result that could occur in a particular circumstance.

B

Summary Introduction

Adequate information:

Base-case NPV was $682,536.67 when the fixed cost was $680,000 .

To compute: Evaluating the sensitivity of base-case NPV to changes in fixed costs.

Introduction: The current value of a future stream of payments from a business, project, or investment is determined using net present value, or NPV. Fixed costs are outlaid that a business must cover regardless of the particular commercial activities it engages in.

C

Summary Introduction

Adequate information:

Fixed cost is $680,000 per year

Contribution is $3,300

Depreciation is $180,000

To compute: Accounting break-even level of output

Introduction: The sales level at which a company makes exactly zero profits, given a set amount of fixed costs that it must cover each month, is known as the accounting breakeven point.

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Answer 5

Chapter 7, Problem 13QAP

A

Summary Introduction

Adequate information:

Cost of the project is $720,000 with 4 year life and no salvage value.

Depreciation is a straight line to zero.

Expected sales are 380 units per year.

Price per unit is $17,400 .

Variable cost is $14,100 per unit.

Fixed cost is $680,000 per year.

Required rate of return is 15% .

Tax rate is 21% .

To compute: Upper and Lower bounds for the projections, base-case NPV, best-case, and worst-case scenarios.

Introduction: Lower bound is a value that is each data set's element's value minus one or the same. An upper bound is a number that exceeds or is equal to each data element in a set. The current value of a future stream of payments from a business, project, or investment is determined using net present value, or NPV. The best-case scenario is any circumstance or result that could not possibly be better; the ideal result. The worst-case scenario takes into account the direst or extreme result that could occur in a particular circumstance.

B

Summary Introduction

Adequate information:

Base-case NPV was $682,536.67 when the fixed cost was $680,000 .

To compute: Evaluating the sensitivity of base-case NPV to changes in fixed costs.

Introduction: The current value of a future stream of payments from a business, project, or investment is determined using net present value, or NPV. Fixed costs are outlaid that a business must cover regardless of the particular commercial activities it engages in.

C

Summary Introduction

Adequate information:

Fixed cost is $680,000 per year

Contribution is $3,300

Depreciation is $180,000

To compute: Accounting break-even level of output

Introduction: The sales level at which a company makes exactly zero profits, given a set amount of fixed costs that it must cover each month, is known as the accounting breakeven point.

Answer 6

Chapter 7, Problem 13QAP

A

Summary Introduction

Adequate information:

Cost of the project is $720,000 with 4 year life and no salvage value.

Depreciation is a straight line to zero.

Expected sales are 380 units per year.

Price per unit is $17,400 .

Variable cost is $14,100 per unit.

Fixed cost is $680,000 per year.

Required rate of return is 15% .

Tax rate is 21% .

To compute: Upper and Lower bounds for the projections, base-case NPV, best-case, and worst-case scenarios.

Introduction: Lower bound is a value that is each data set's element's value minus one or the same. An upper bound is a number that exceeds or is equal to each data element in a set. The current value of a future stream of payments from a business, project, or investment is determined using net present value, or NPV. The best-case scenario is any circumstance or result that could not possibly be better; the ideal result. The worst-case scenario takes into account the direst or extreme result that could occur in a particular circumstance.

Answer 7

Chapter 7, Problem 13QAP

A

Summary Introduction

Adequate information:

Cost of the project is $720,000 with 4 year life and no salvage value.

Depreciation is a straight line to zero.

Expected sales are 380 units per year.

Price per unit is $17,400 .

Variable cost is $14,100 per unit.

Fixed cost is $680,000 per year.

Required rate of return is 15% .

Tax rate is 21% .

To compute: Upper and Lower bounds for the projections, base-case NPV, best-case, and worst-case scenarios.

Introduction: Lower bound is a value that is each data set's element's value minus one or the same. An upper bound is a number that exceeds or is equal to each data element in a set. The current value of a future stream of payments from a business, project, or investment is determined using net present value, or NPV. The best-case scenario is any circumstance or result that could not possibly be better; the ideal result. The worst-case scenario takes into account the direst or extreme result that could occur in a particular circumstance.

Answer 8

B

Summary Introduction

Adequate information:

Base-case NPV was $682,536.67 when the fixed cost was $680,000 .

To compute: Evaluating the sensitivity of base-case NPV to changes in fixed costs.

Introduction: The current value of a future stream of payments from a business, project, or investment is determined using net present value, or NPV. Fixed costs are outlaid that a business must cover regardless of the particular commercial activities it engages in.

Answer 9

B

Summary Introduction

Adequate information:

Base-case NPV was $682,536.67 when the fixed cost was $680,000 .

To compute: Evaluating the sensitivity of base-case NPV to changes in fixed costs.

Introduction: The current value of a future stream of payments from a business, project, or investment is determined using net present value, or NPV. Fixed costs are outlaid that a business must cover regardless of the particular commercial activities it engages in.

Answer 10

C

Summary Introduction

Adequate information:

Fixed cost is $680,000 per year

Contribution is $3,300

Depreciation is $180,000

To compute: Accounting break-even level of output

Introduction: The sales level at which a company makes exactly zero profits, given a set amount of fixed costs that it must cover each month, is known as the accounting breakeven point.

Answer 11

C

Summary Introduction

Adequate information:

Fixed cost is $680,000 per year

Contribution is $3,300

Depreciation is $180,000

To compute: Accounting break-even level of output

Introduction: The sales level at which a company makes exactly zero profits, given a set amount of fixed costs that it must cover each month, is known as the accounting breakeven point.

Answer 12

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Answer 13

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Answer 15

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Solution Summary: The author explains the upper and lower bounds for projections, base case NPV, best-case, and worst case scenarios.

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