The degree of operating leverage. Introduction: Degree of operating leverage is a measure that indicates the sensitivity on the fixed cost of the project. It interprets that a company with more high operating leverage indicates higher fixed costs and vice versa.

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Chapter 11, Problem 30QP

Summary Introduction

To determine: The degree of operating leverage.

Introduction:

Degree of operating leverage is a measure that indicates the sensitivity on the fixed cost of the project. It interprets that a company with more high operating leverage indicates higher fixed costs and vice versa.

Summary Introduction

To determine: The sensitivity of change in the operating cash flow to operating cash flow.

Introduction:

Sensitivity analysis is analyzing the impact of changing one variable on the net present value. It helps to identify the areas in which the forecasting errors would be severe. The basic concept of sensitivity analysis is to freeze the entire variables excluding one.

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use excel/show all excel formulas answering the following LO3 20. Sensitivity Analysis We are evaluating a project that costs $1.68 million, has a six-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 90,000 units per year. Price per unit is $37.95, variable cost per unit is $23.20, and fixed costs are $815,000 per year. The tax rate is 21 percent, and we require a return of 11 percent on this project. a. Calculate the base-case cash flow and NPV. What is the sensitivity of NPV to changes in the sales figure? Explain what your answer tells you about a 500-unit decrease in projected sales. b. What is the sensitivity of OCF to changes in the variable cost figure? Explain what your answer tells you about a $1 decrease in estimated variable costs. LO3 21. Scenario Analysis In the previous problem, suppose the projections given for price, quantity, variable costs, and fixed costs are all accurate to…

The following information is provided. Project Income Investment A P33,000 P300,000 B P56,250 P750,000 C P27,500 P550,000 Assume the division's current ROI is 10% and the firms minimum required rate of return is 7%. If you were the president of the company, which projects would you want the division manager to accept? a. A, B and C b. A and C c. A and B d. A only e. B only.

Answer 2

Question

Chapter 11, Problem 30QP

Summary Introduction

To determine: The degree of operating leverage.

Introduction:

Degree of operating leverage is a measure that indicates the sensitivity on the fixed cost of the project. It interprets that a company with more high operating leverage indicates higher fixed costs and vice versa.

Summary Introduction

To determine: The sensitivity of change in the operating cash flow to operating cash flow.

Introduction:

Sensitivity analysis is analyzing the impact of changing one variable on the net present value. It helps to identify the areas in which the forecasting errors would be severe. The basic concept of sensitivity analysis is to freeze the entire variables excluding one.

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Answer 3

Question

Chapter 11, Problem 30QP

Summary Introduction

To determine: The degree of operating leverage.

Introduction:

Degree of operating leverage is a measure that indicates the sensitivity on the fixed cost of the project. It interprets that a company with more high operating leverage indicates higher fixed costs and vice versa.

Summary Introduction

To determine: The sensitivity of change in the operating cash flow to operating cash flow.

Introduction:

Sensitivity analysis is analyzing the impact of changing one variable on the net present value. It helps to identify the areas in which the forecasting errors would be severe. The basic concept of sensitivity analysis is to freeze the entire variables excluding one.

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Answer 4

Question

Chapter 11, Problem 30QP

Summary Introduction

To determine: The degree of operating leverage.

Introduction:

Degree of operating leverage is a measure that indicates the sensitivity on the fixed cost of the project. It interprets that a company with more high operating leverage indicates higher fixed costs and vice versa.

Summary Introduction

To determine: The sensitivity of change in the operating cash flow to operating cash flow.

Introduction:

Sensitivity analysis is analyzing the impact of changing one variable on the net present value. It helps to identify the areas in which the forecasting errors would be severe. The basic concept of sensitivity analysis is to freeze the entire variables excluding one.

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Answer 5

Chapter 11, Problem 30QP

Summary Introduction

To determine: The degree of operating leverage.

Introduction:

Degree of operating leverage is a measure that indicates the sensitivity on the fixed cost of the project. It interprets that a company with more high operating leverage indicates higher fixed costs and vice versa.

Summary Introduction

To determine: The sensitivity of change in the operating cash flow to operating cash flow.

Introduction:

Sensitivity analysis is analyzing the impact of changing one variable on the net present value. It helps to identify the areas in which the forecasting errors would be severe. The basic concept of sensitivity analysis is to freeze the entire variables excluding one.

Answer 6

Chapter 11, Problem 30QP

Summary Introduction

To determine: The degree of operating leverage.

Introduction:

Degree of operating leverage is a measure that indicates the sensitivity on the fixed cost of the project. It interprets that a company with more high operating leverage indicates higher fixed costs and vice versa.

Answer 7

Chapter 11, Problem 30QP

Summary Introduction

To determine: The degree of operating leverage.

Introduction:

Degree of operating leverage is a measure that indicates the sensitivity on the fixed cost of the project. It interprets that a company with more high operating leverage indicates higher fixed costs and vice versa.

Answer 8

Summary Introduction

To determine: The sensitivity of change in the operating cash flow to operating cash flow.

Introduction:

Sensitivity analysis is analyzing the impact of changing one variable on the net present value. It helps to identify the areas in which the forecasting errors would be severe. The basic concept of sensitivity analysis is to freeze the entire variables excluding one.

Answer 9

Summary Introduction

To determine: The sensitivity of change in the operating cash flow to operating cash flow.

Introduction:

Sensitivity analysis is analyzing the impact of changing one variable on the net present value. It helps to identify the areas in which the forecasting errors would be severe. The basic concept of sensitivity analysis is to freeze the entire variables excluding one.

Answer 10

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Answer 13

Ch. 11.1 - Prob. 11.1ACQ Ch. 11.1 - What are some potential sources of value in a new...Ch. 11.2 - Prob. 11.2ACQ Ch. 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

The degree of operating leverage. Introduction: Degree of operating leverage is a measure that indicates the sensitivity on the fixed cost of the project. It interprets that a company with more high operating leverage indicates higher fixed costs and vice versa.

Solution Summary: The author explains the degree of operating leverage, which indicates the sensitivity on the fixed cost of the project.

To determine: The degree of operating leverage.

Introduction:

Degree of operating leverage is a measure that indicates the sensitivity on the fixed cost of the project. It interprets that a company with more high operating leverage indicates higher fixed costs and vice versa.

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Chapter 11 Solutions

The degree of operating leverage. Introduction: Degree of operating leverage is a measure that indicates the sensitivity on the fixed cost of the project. It interprets that a company with more high operating leverage indicates higher fixed costs and vice versa.

Solution Summary: The author explains the degree of operating leverage, which indicates the sensitivity on the fixed cost of the project.

To determine: The degree of operating leverage. Introduction: Degree of operating leverage is a measure that indicates the sensitivity on the fixed cost of the project. It interprets that a company with more high operating leverage indicates higher fixed costs and vice versa.

Want to see the full answer?

Chapter 11 Solutions

To determine: The degree of operating leverage.

Introduction:

Degree of operating leverage is a measure that indicates the sensitivity on the fixed cost of the project. It interprets that a company with more high operating leverage indicates higher fixed costs and vice versa.