1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
Dennis_Churaev [7]
2 years ago
5

We are evaluating a project that costs $644,000, has an eight-year life, and has no salvage value. Assume that depreciation is s

traight-line to zero over the life of the project. Sales are projected at 70,000 units per year. Price per unit is $37, variable cost per unit is $21, and fixed costs are $725,000 per year. The tax rate is 35 percent, and we require a 15 percent return on this project.
Required:
a. Calculate the accounting break-even point.
b. 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.
c. 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.
Business
1 answer:
AleksandrR [38]2 years ago
7 0

Solution :

a).

Particulars                                                Details

Selling price per unit                                 37

Less : variable cost per unit                     -21

Margin per unit                                           16

No. of units sold per unit                       70,000

Gross margin                                        11,20,000

Less : fixed cost                                     - 7,25,000

Profit before depreciation and tax       3,95,000

Less : depreciation                                -80,500

Profit before tax                                     3,14,500

Less : Tax                                               -1,10,075

Net profit per year                                 2,04,425

Project Cost                                           6,44,000

Accounting breakeven point in years     3.15

b).

Calculating the base Cash - Cash flow and NPV

Particulars                                                       Amount

Net profit per year                                        2,04,425

Add : depreciation                                         80,500

Base Cash cashflow                                     2,84,925

Required rate of return                                    15%

Present value of base cash cash flow        12,78,550

received in 8 years.

Project cost                                                  -6,44,000

NPV                                                               6,34,550

The present value of base cash cash flow received in 8 years is calculated as Present value of annuity received at the end of each year $ 2,84,925 at the rate of interest 15% for a period of 8 years.

The sensitivity of the NPV to 500 units decrease in projected sales :

Particulars                                                          Details

Selling price per unit                                            37

Less : variable cost per unit                                -21

Margin per unit                                                     16

Number of units sold per year                          69,500

Gross margin                                                      11,12,000

Less : fixed cost                                                -7,25,000

Profit before depreciation and tax                   3,87,000

Less : depreciation                                            -80,500

Profit before tax                                                 3,06,500

Less : tax                                                            -1,07,275

Net profit per year                                             1,99,225

Add : depreciation                                              80,500

Base Cash cashflow                                          2,79,725

Required rate of return                                         15%

Present value of base cash cash flow              12,55,216

received in 8 years.

Project cost                                                    -6,44,000

NPV                                                                6,11,216

Original NPV                                                  6,34,550

Sensitive NPV                                                  -23,334

c).

Particulars                                                              Details

Selling price per unit                                               37

Less : variable cost per unit                                   -20

Margin per unit                                                        17

No. of units sold per year                                     70,000

Gross Margin                                                         11,90,000

Less : fixed cost                                                     -7,25,000

Profit before depreciation and tax                       4,65,000

Less : Depreciation                                                -80,500

Profit before tax                                                     3,84,500

Less : tax                                                                -1,34,575

Net profit per year                                                  2,49925

Add : depreciation                                                   80,500

Operating cash flow                                               3,30,425

Original operating cashflow                                   2,84,925

Sensitivity of OCF                                                      45,500

You might be interested in
Wilvade Inc. has modified the work timings for its employees. The employees of the company believe that the new timings are inco
Fiesta28 [93]

Answer:

a. empathetic listening

Explanation:

Empathetic listening is trying to understand the point the other person is trying to make and connect with him/her. An important characteristic is to listen to the other person without judging to be open to what is being said and really understand. So, the management of Wilvade Inc. is most likely using empathetic listening because they are trying to understand the employees concers and they want to address the situation.

6 0
3 years ago
​U(X,Y)equals=20Xplus+80Yminus−Upper X squaredX2minus−2Upper Y squaredY2 where X is his consumption of CDs with a price of ​$11
ankoles [38]

Answer:

The number of CDs = 111.36

The number of movie videos = 242.72

N/B: I choose not to round up the answers.

Explanation:

The method used is the Lagrangian method. Basically, the optimization problem we are trying to solve is  the utility function u(x,y) = 20x+80y -x^2 -y^2

subject to the constraint

11x + 22y = 6565.

So the optimization problem(Lagrangian) is

\Delta = 20x + 80y -x^2 -y^2- \lambda(11x+22y-6565),

where \lambda is a constant called the Lagrange multiplier.

To find the optimal consumption, we need to maximize the Lagrangian with respect to the variables x,y,\lambda. This we do by differentiating \Delta with respect to each variable and then equate to 0.

\Delta_x : 11\lambda = 20 - 2x ........................(1) \\\Delta_y: 11\lambda = 40 -y .........................(2) \\\Delta_\lambda = 11x + 22y = 6565............................(3) \\

Equate (1) and (2), to get y = 20+2x and substitute into (3) to get x = 111.36. Substituting x = 111.36 into 20+2x to get the corresponding value of y.

7 0
3 years ago
If you fail to submit the FAFSA...
Georgia [21]

Answer:

The correct answer is letter "B": You will not have access to Federal student aid, such as scholarships, grants, and loans.

Explanation:

Application to the Free Application for Federal Student Aid (FAFSA) is not mandatory. However, students who do not submit an application <em>will not be provided any financial aid</em> in their studies which implies paying several thousands of dollars more than if approved to the grant.

3 0
3 years ago
Mikey initially invested $2,400 in a company and has held this investment for 3 years. He sold the investment after 3 years for
Tanzania [10]

Answer:

499.80

Explanation:

There is no 39.6% tax bracket, the highest marginal tax is 37%. But we can assume that Mikey had to pay 39.6% in taxes which means that he is in the seventh tax bracket (highest). Since he is classified under the highest tax bracket, he will also pay the highest capital gains rate which is 20%.

Mikey's long term capital gain = $4,950 - $2,400 = $2,550

if he paid regular income taxes = $2,550 x 39.6% = $1,009.80

since he pays capital gains taxes = $2,550 x 20% = $510

That means he saves $1,009.80 - $510 = 499.80

3 0
3 years ago
Many places of business will not take a check, but will take a credit card. True or False
luda_lava [24]
<span>True, because if they take a check, they may be cheated because the check has an expiration date, and the credit card does not

</span>
7 0
3 years ago
Other questions:
  • A business owner makes 50 items by hand in 40 hours. She could have earned $20 an hour working for someone else. Her total expli
    9·1 answer
  • When can ScreenTips be useful?
    6·1 answer
  • Benjamin Fisher, the CEO of a stock brokerage firm, has been accused of insider trading. This is illegal and implies that Benjam
    9·1 answer
  • What are expenses that change as conditions change?
    13·2 answers
  • You have gathered the following information on your investments. What is the expected return on the portfolio? Stock Number of S
    12·1 answer
  • The IMA suggests​ that, when faced with an ethical​ dilemma, the first thing management accountants should do is call the​ IMA's
    7·1 answer
  • Which of the following best illustrates the purpose of labor laws?
    6·1 answer
  • Admitting New Partner With Bonus Cody Jenkins and Lacey Tanner formed a partnership to provide landscaping services. Jenkins and
    15·1 answer
  • THERE ARE TEN BUTTONS ON THE TABLE
    11·2 answers
  • Organizational purpose serves as the basis for an organization's ______. (select all that apply)
    15·2 answers
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!