Question

[5]

Let's say you want to evaluate an investment with an initial investment of $ 724,000, a lifetime of 8 years, and a zero-residual value. Investment costs are depreciated by the straight-line depreciation method over the life of the investment. The annual sales volume is estimated at 90,000 units, with a price of $ 43 per unit, a variable cost of $ 29 per unit, and an annual fixed cost of $ 780,000. The tax rate is 35% and the required rate of return is 15%.

A. Calculate the accounting breakeven point. What is the operating leverage (DOL) at this time? |

B. Calculate the cash flow and net present value in the basic situation. What is the sensitivity of the net price if the estimate of the sales volume changes? What tells you that the estimated sales of the answer is reduced by 500 units?

C. How sensitive is the OCF when the variable cost changes? What does the answer tell us about the estimated $ 1 loss in variable costs?

D?Assuming that the estimates for price, sales volume, variable cost, and fixed cost are accurate to within 10% error in problem 5, respectively, try to obtain the NPV in the best and worst situations.

E? K company manufactures mountaineering shoes. The variable material cost per unit is $ 24.86 and the variable labor cost is $ 14.08. Also, the selling price per unit is $ 135. Last year, it produced 120,000 units, with a fixed cost of $ 1,550,000. What is the total cost of production? What is the marginal cost per unit? What is the average cost? The company is considering whether it should get 5,000 pairs of shoes to be ordered once. In order to accept this order, how much of this gross amount should this order bring?

F?Estimated figures for any investment are: The price per unit is $ 57, the variable cost per unit is $ 32, the fixed cost is $ 9,000, the required return is 12%, the initial investment is $ 18,000, and the lifetime in the investment is 4 years. When you ignore the tax effect, what is the sales volume at the accounting breakeven point? What is the sales volume at the cash breakeven point? What is the sales volume at the financial breakeven point? What is the operating leverage in sales at the financial breakeven point?

G?Operating leverage was 3.40 in sales of 65,000 units. If sales volume increases to 70,000 units, what is the rate of change in operating cash flow? Does the new operating leverage appear higher than before? Does it appear lower? Explain. and In this issue , let's say the fixed cost is $ 130,000. What is the operating cash flow when the sales volume is 58,000 units? What is your business leverage?

Answer 1

Accounting breakeven happens when profit is zer0
Price X Quantity sold (Q)		=	Variable Cost X Q+Fixed Cost
43Q	=	29Q+780000
Q	=	55714.29
	Cash Flows
	Year 0	Year 1	Year 2	Year 3	Year 4	Year 5	Year 6	Year 7	Year 8
Investment	724000
Sales		3870000	3870000	3870000	3870000	3870000	3870000	3870000	3870000	(90000X43)
Variable cost		2610000	2610000	2610000	2610000	2610000	2610000	2610000	2610000	(90000X29)
Fixed cost		780000	780000	780000	780000	780000	780000	780000	780000
Depreciation		90500	90500	90500	90500	90500	90500	90500	90500	(724000/8)
PBT		389500	389500	389500	389500	389500	389500	389500	389500	(sales-variable-fixed cost-depreciation)
Tax		136325	136325	136325	136325	136325	136325	136325	136325	(35%XPBT)
PAT		253175	253175	253175	253175	253175	253175	253175	253175
Cash flow	-724000	343675	343675	343675	343675	343675	343675	343675	343675		(PAT + Depreciation)
NPV = -724000+343675/(1+15%)+34675/(1+15%^2)+........343675/(1+15%^8)
NPV	7,11,461.06