FUND.OF CORPORATE FINANCE(LL)
11th Edition
ISBN: 9781260443714
Author: Ross
Publisher: MCG
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Chapter 11, Problem 10QP
Using Break-Even Analysis [LO3] Consider a project with the following data: accounting break-even quantity = 14,200 units; cash break-even quantity = 10,300 units; life = five years; fixed costs = $170,000; variable costs = $27 pier unit; required return = 12 percent. Ignoring the effect of taxes, find the financial break-even quantity.
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Unit price:
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be depreclated straight-line over the project life to a final value of zero. The firm's tax rate is 21% and the required rate of return is 14%.
(For all the requirements, a negative amount should be indicated by a minus sign. Enter your answer in dollars not in millions. Do
not round intermediate calculations. Round your answer to the nearest dollar amount.)
a. What is project NPV in the best-case scenario, that is, assuming all variables take on the best possible value?
b. What is project NPV in the worst-case scenario?
The most likely outcomes for a particular project are estimated as
follows:
Unit price:
Variable cost:
Fixed cost:
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$ 30
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However, you recognize that some of these estimates are subject to
error. Suppose each variable turns out to be either 10% higher or 10%
lower than the initial estimate. The project will last for 10 years and
requires an initial investment of $2.3 million, which will be depreciated
straight-line over the project life to a final value of zero. The firm's tax
rate is 21%, and the required rate of return is 10%.
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b. NPV
a. What is project's NPV in the best-case scenario, that is, assuming
all variables take on the best possible value?
b. What is project's NPV in the worst-case scenario?
Note: For all the requirements, a negative amount should be
indicated by a minus sign. Enter your answers in dollars, not in
millions. Do not round intermediate calculations. Round your
answers to the nearest dollar amount.
4
Chapter 11 Solutions
FUND.OF CORPORATE FINANCE(LL)
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
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