The accounting break-even point and the degree of operating leverage based on accounting break-even point. Introduction: Accounting break-even is a sales point at which there is no profit or loss. It is the most widely used measure of break-even point. Degree of operating leverage is a measure that indicates the sensitivity on the fixed cost of the project.

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Answer 1

Question

Chapter 11, Problem 5QP

a)

Summary Introduction

To determine: The accounting break-even point and the degree of operating leverage based on accounting break-even point.

Introduction:

Accounting break-even is a sales point at which there is no profit or loss. It is the most widely used measure of break-even point.

Degree of operating leverage is a measure that indicates the sensitivity on the fixed cost of the project.

b)

Summary Introduction

To determine: The base-case cash flow and the net present value (NPV)

Introduction:

Net present value (NPV) refers to the discounted value of the future cash flows at present. The company should accept the project, if the net present value is positive or greater than zero. If there are two mutually exclusive projects, then the company has to select the project that has higher net present value.

c)

Summary Introduction

To determine: The sensitivity of operating cash flows to the change in the variable cost value.

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Answer 2

Question

Chapter 11, Problem 5QP

a)

Summary Introduction

To determine: The accounting break-even point and the degree of operating leverage based on accounting break-even point.

Introduction:

Accounting break-even is a sales point at which there is no profit or loss. It is the most widely used measure of break-even point.

Degree of operating leverage is a measure that indicates the sensitivity on the fixed cost of the project.

b)

Summary Introduction

To determine: The base-case cash flow and the net present value (NPV)

Introduction:

Net present value (NPV) refers to the discounted value of the future cash flows at present. The company should accept the project, if the net present value is positive or greater than zero. If there are two mutually exclusive projects, then the company has to select the project that has higher net present value.

c)

Summary Introduction

To determine: The sensitivity of operating cash flows to the change in the variable cost value.

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Answer 3

Question

Chapter 11, Problem 5QP

a)

Summary Introduction

To determine: The accounting break-even point and the degree of operating leverage based on accounting break-even point.

Introduction:

Accounting break-even is a sales point at which there is no profit or loss. It is the most widely used measure of break-even point.

Degree of operating leverage is a measure that indicates the sensitivity on the fixed cost of the project.

b)

Summary Introduction

To determine: The base-case cash flow and the net present value (NPV)

Introduction:

Net present value (NPV) refers to the discounted value of the future cash flows at present. The company should accept the project, if the net present value is positive or greater than zero. If there are two mutually exclusive projects, then the company has to select the project that has higher net present value.

c)

Summary Introduction

To determine: The sensitivity of operating cash flows to the change in the variable cost value.

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Answer 4

Question

Chapter 11, Problem 5QP

a)

Summary Introduction

To determine: The accounting break-even point and the degree of operating leverage based on accounting break-even point.

Introduction:

Accounting break-even is a sales point at which there is no profit or loss. It is the most widely used measure of break-even point.

Degree of operating leverage is a measure that indicates the sensitivity on the fixed cost of the project.

b)

Summary Introduction

To determine: The base-case cash flow and the net present value (NPV)

Introduction:

Net present value (NPV) refers to the discounted value of the future cash flows at present. The company should accept the project, if the net present value is positive or greater than zero. If there are two mutually exclusive projects, then the company has to select the project that has higher net present value.

c)

Summary Introduction

To determine: The sensitivity of operating cash flows to the change in the variable cost value.

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Answer 5

Chapter 11, Problem 5QP

a)

Summary Introduction

To determine: The accounting break-even point and the degree of operating leverage based on accounting break-even point.

Introduction:

Accounting break-even is a sales point at which there is no profit or loss. It is the most widely used measure of break-even point.

Degree of operating leverage is a measure that indicates the sensitivity on the fixed cost of the project.

b)

Summary Introduction

To determine: The base-case cash flow and the net present value (NPV)

Introduction:

Net present value (NPV) refers to the discounted value of the future cash flows at present. The company should accept the project, if the net present value is positive or greater than zero. If there are two mutually exclusive projects, then the company has to select the project that has higher net present value.

c)

Summary Introduction

To determine: The sensitivity of operating cash flows to the change in the variable cost value.

Answer 6

Chapter 11, Problem 5QP

a)

Summary Introduction

To determine: The accounting break-even point and the degree of operating leverage based on accounting break-even point.

Introduction:

Accounting break-even is a sales point at which there is no profit or loss. It is the most widely used measure of break-even point.

Degree of operating leverage is a measure that indicates the sensitivity on the fixed cost of the project.

Answer 7

Chapter 11, Problem 5QP

a)

Summary Introduction

To determine: The accounting break-even point and the degree of operating leverage based on accounting break-even point.

Introduction:

Accounting break-even is a sales point at which there is no profit or loss. It is the most widely used measure of break-even point.

Degree of operating leverage is a measure that indicates the sensitivity on the fixed cost of the project.

Answer 8

b)

Summary Introduction

To determine: The base-case cash flow and the net present value (NPV)

Introduction:

Net present value (NPV) refers to the discounted value of the future cash flows at present. The company should accept the project, if the net present value is positive or greater than zero. If there are two mutually exclusive projects, then the company has to select the project that has higher net present value.

Answer 9

b)

Summary Introduction

To determine: The base-case cash flow and the net present value (NPV)

Introduction:

Net present value (NPV) refers to the discounted value of the future cash flows at present. The company should accept the project, if the net present value is positive or greater than zero. If there are two mutually exclusive projects, then the company has to select the project that has higher net present value.

Answer 10

c)

Summary Introduction

To determine: The sensitivity of operating cash flows to the change in the variable cost value.

Answer 11

c)

Summary Introduction

To determine: The sensitivity of operating cash flows to the change in the variable cost value.

Answer 12

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Answer 13

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Answer 14

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Answer 15

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

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To determine: The sensitivity of operating cash flows to the change in the variable cost value.

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