Assignment
1.A project has the following estimated data: price = $79 per unit; variable costs = $41.87 per unit; fixed costs = $6,900; required return = 9 percent; initial investment = $10,000; life = six years. Ignore the effect of taxes.
a. What is the accounting break-even quantity?
b. What is the cash break-even quantity?
c. What is the financial break-even quantity?
d. What is the degree of operating leverage at the financial break-even level of output?
2. Consider the following cases: CaseUnit PriceUnit Variable
CostFixed CostsDepreciation1$ 4,000 $ 2,960 $ 15,000,000 $ 6,300,000 236 26.28 15,000 36,000 39 3.38 1,000 800 Ignore any tax effects in calculating the cash break-even.
1a. Calculate the cash break-even point of Case 1.
1b. Calculate the accounting break-even point of Case 1.
2a. Calculate the cash break-even point of Case 2.
2b. Calculate the accounting break-even point of Case 2.
3a. Calculate the cash break-even point of Case 3.
3b. Calculate the accounting break-even point of Case 3.
3. A project that provides annual cash flows of $12,300 for 11 years costs $79,889 today.
a. If the required return is 14 percent, what is the NPV for this project?
b. Determine the IRR for this project.
4. Bruin, Inc., has identified the following two mutually exclusive projects: YearCash Flow (A)Cash Flow (B)0-$36,200 -$36,200 118,700 6,300 214,200 12,800 311,700 19,300 48,700 23,300
a. What is the IRR for Project A?
b. What is the IRR for Project B?
c. If the required return is 10 percent, what is the NPV for Project A?
d. If the required return is 10 percent, what is the NPV for Project B? e. At what discount rate would the company be indifferent between these two projects?
5. Consider the following two mutually exclusive projects: YearCash Flow (A)Cash Flow (B)0-$198,945 -$16,266 127,500 5,697 252,000 8,817 354,000 13,658 4394,000 8,382 Whichever project you choose, if any, you require a 6 percent return on your investment.
a. What is the payback period for Project A?
b. What is the payback period for Project B?
c. What is the discounted payback period for Project A?
d. What is the discounted payback period for Project B?
e. What is the NPV for Project A?
f. What is the NPV for Project B ?
g. What is the IRR for Project A?
h. What is the IRR for Project B?
i. What is the profitability index for Project A?
j. What is the profitability index for Project B?
Format your assignment according to the following formatting requirements:
1. The answer should be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides.
2. The response also includes a cover page containing the title of the assignment, the student's name, the course title, and the date. The cover page is not included in the required page length.
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