FUND OF CORPORATE FINANCE LL W/ACCESS
11th Edition
ISBN: 9781260076752
Author: Ross
Publisher: MCG
expand_more
expand_more
format_list_bulleted
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
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
1. If Department B is able to reduce its operating assets by $100,000. Department B's new ROI would be?
2. If Department A is able to increase its controllable margin by $60,000 as a result of reducing variable costs, Department A's new ROI would be?
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.
Chapter 11 Solutions
FUND OF CORPORATE FINANCE LL W/ACCESS
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
Similar questions
- [EXCEL] Payback: Refer to Problem 5. What are the payback periods for production systems 1 and 2? If the systems are mutually exclusive and the firm always chooses projects with the lowest payback period, in which system should the firm invest? please use excel. Problem 5 info: 5. [EXCEL] Net present value: Blanda Incorporated management is considering investing in two alternative production systems. The systems are mutually exclusive, and the cost of the new equipment and the resulting cash flows are shown in the accompanying table. If the firm uses a 9 percent discount rate for production system projects, in which system should the firm invest? Year System 1 System 2 0 −$15,000 −$45,000 1 15,000 32,000 2 15,000 32,000 3 15,000 32,000arrow_forward7). A project has the following estimated data: Price = $54 per unit Variable costs = $36 per unit Fixed costs = $19,300 Required return = 12% Initial investment = $23,800 Life = 4 years Ignoring the effect of taxes, what is the: a). Accounting break-even quantity? b) Cash break-even quantity? c) Financial break-even quantity? d) Degree of operating leverage at the financial break-even level of output?arrow_forward6b) 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.arrow_forward
- You are an industry analyst that specializes in an industry where the market inverse demand is P = 100 - 2Q. The external marginal cost of producing the product is MCExternal = 8Q, and the internal cost is MCInternal = 18Q.Instructions: Enter your responses rounded to the nearest two decimal places.a. What is the socially efficient level of output? unitsb. Given these costs and market demand, how much output would a competitive industry produce? unitsc. Given these costs and market demand, how much output would a monopolist produce? unitsd. Which of the following are actions the government could take to induce firms in this industry to produce the socially efficient level of output.Instructions: For correct answers place a check mark. check all that apply Nonrival consumptionunanswered Pollution taxesunanswered Pollution permitsunansweredarrow_forwardA firm has the following total revenue and total cost schedules: TR = $2Q. TC = $3,500 + $1.6Q. What is the break-even level of output? Round your answer to the nearest whole number. units What is the level of profits at sales of 9,500 units? Round your answer to the nearest dollar. $ As the result of a major technological breakthrough, the total cost schedule is changed to: TC = $6,500 + $0.5Q. What is the break-even level of output? Round your answer to the nearest whole number. units What is the level of profits at sales of 9,500 units? Round your answer to the nearest dollar. $arrow_forwardQ1) One of the industrial investors needed an analysis that would lead him to a break-even level between the following inputs and outputs: Fixed Cost = 180079 $ , Variable Costs =475, Revenue of saling prices per unit (204 $ ) Y of Products 890 ‘599‘ 917‘ eu‘ 955[ 975‘ sas[ 1,u7‘ 1,159' 1,193‘ 1,209‘ 1,255‘ Require A) Find all lines of anlysis . B) How the produaction reach to B.E.P. C) Based on the available information, show the level of variation from line of production to other annually.arrow_forward
- A firm has the following total avenue and total cost schedules TR=$2Q TC=$4,000 +$1.5Q a. what is the break- even level of output? what is the level of profit at sales of 9,000 units b. as the result of a major technological breakthrough, the total cost sales is changed to: TC= $6,000 + $0.5Q What is the break-even level of output? what is the level of profit at sales of 9,000 units?arrow_forward1. Multiplicationtable: (No need the explanation just the answer pls)A manufacturer has invested P750,000 in a new product and wants to set a price to earn a 15 percent ROI. The cost per unit is P18 and the company expects to sell 50,000 units in the first year. The company's target-return price for this product is P ______. a. 18.23 b.20.25 c.20.70 d.18.10 e.25.202. A ballpen manufacturer have the following costs and expected sales: Variable cost P 10.00 Fixed cost P300,000.00Expected unit sales 50,000 Break-even volume will be P______. a. 30,000 b. 35,000 c. 20,000 d. 25,000 3. If the cost of manufacturing a product is P30 and the item sells for P50, the markup percentage is _____ %. a. 67.7 b. 67.6 c. 66.7 d. 66.8arrow_forward11. Suppose an office building is owned for which long-term leases have been signed, the tenants pay utilities and operating costs, and straight-line depreciation is taken. The rate of return on the book value of this investment can be expected to _____________________12. An advantage of centralization is ______________________13. ROI will decrease if ____________________14. Operating income is __________________Pointsarrow_forward
- D2) True or false ? Explain your answer? If the cost of producing 1,000 Maytag dishwashers is $200,000 and the cost of producing 1,500 Maytag dishwashers is $320,000, the Maytag firm is experiencing increasing returns to scale.arrow_forwardHyms Division of ASOP’s Company’s operating results include: controllable margin, P200,000; sales P2,200,000; and operating assets, P800,000. The Hyms Division’s ROI is 25%. Management is considering a project with sales of P100,000, variable expenses of P60,000, fixed costs of P40,000; and an asset investment of P150,000. Should management accept this new project? a. No, since ROI will be lowered. b. Yes, since ROI will increase. c. Yes, since additional sales always mean more customers. d. No, since a loss will be incurred.arrow_forward
arrow_back_ios
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 LearningCorporate 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