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- Roberts Company is considering an investment in equipment that is capable of producing more efficiently than the current technology. The outlay required is 2,293,200. The equipment is expected to last five years and will have no salvage value. The expected cash flows associated with the project are as follows: Required: 1. Compute the projects payback period. 2. Compute the projects accounting rate of return. 3. Compute the projects net present value, assuming a required rate of return of 10 percent. 4. Compute the projects internal rate of return.Consider a four-year project with the following information: Initial fixed asset investment = $575,000; straight-line depreciation to zero over the four-year life; zero salvage value; price = $29; variable costs = $19; fixed costs = $235,000; quantity sold = 76,000 units; tax rate = 21 percent. a. What is the degree of operating leverage at the given level of output? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What is the degree of operating leverage at the accounting break-even level of output? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)Consider a four-year project with the following information: initial fixed asset investment = $590,000; straight-line depreciation to zero over the four-year life; zero salvage value; price = $34; variable costs = $26; fixed costs = $230,000; quantity sold = 89,000 units; tax rate = 35 percent. What is the degree of operating leverage at the given level of output? What is the degree of operating leverage at the accounting break-even level of output?
- Consider a project with a 3-year life and no salvage value. The initial cost to set up the project is $100,000. This amount is to be linearly depreciated to zero over the life of the project. The price per unit is $90, variable costs are $72 per unit and fixed costs are $10,000 per year. The project has a required return of 12%. Ignore taxes. 1. How many units must be sold for the project to achieve accounting break-even? 2. How many units must be sold for the project to achieve cash break-even? 3. How many units must be sold for the project to achieve financial break-even? 4. What is the degree of operating leverage at the financial break-even?You are considering an investment project with the following financial information: Required investment = $500,000 Project life = 5 years Salvage value = $50,000 Depreciation method = straight-line deprecation (no half-year convention) Unit price = $40 Unit variable cost = $18 Fixed annual cost = $230,000 Annual sales volume = 100,000 units Tax rate = 35% MARR = 15% The company is concerned about the price estimate they have used to calculate the rate of return. Using sensitivity analysis, how much can the price vary to still break-even? The company believes that their estimates for unit price, demand, variable cost, fixed cost, and salvage value are accurate to +/- 10%. Using scenario analysis compare the base case to the best-case and worst-case scenarios.Appalachian Crafts is analyzing a project with expected sales of 18,900 units, ±2 percent. The expected variable cost per unit is $23 and the expected fixed costs are $52,000. Cost estimates are considered accurate within a range of ±1 percent. The depreciation expense is $18,400. The sale price is estimated at $54 a unit, ±2 percent. What is the total dollar difference between the revenue using the optimistic sale price versus the expected sale price?
- Magellen Industries is analyzing a new project. The data they have gathered to date is as follows: Sales quantity Sales price per unit Variable cost per unit Fixed cost Multiple Choice J Initial requirement for equipment: $120,000 Depreciation: Straight-line to zero over the four-year life of the project with no salvage value. Required rate of return: 15% Marginal tax rate: 35% .93 What is the degree of operating leverage under the worst-case scenario? 1.07 1.93 Lower Bound 2.07 9500 $9.75 $4.80 $15,000.00 1.63 Expected Value 10000 $10.00 $5.20 $18,000.00 Upper Bound 10500 $10.25 $5.60 $21,000.001. Sensitivity Analysis and Break-Even Point We are evaluating a project that costs $604,000, has an 8-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 55,000 units per year. Price per unit is $36, variable cost per unit is $17, and fixed costs are $685,000 per year. The tax rate is 21 percent and we require a return of 15 percent on this project. 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. 2. Scenario Analysis In the previous problem, suppose the projections given for price, quantity, variable costs, and fixed costs are all accurate to within +10…Use the following base case information to evaluate the project: PT Kolam Makara has a project costs $900,000, has a five-year life, and has a salvage value of $130,000. Depreciation is straight-line to zero. The required return is 14% and tax rate is 34%. Sales are projected at 2350 units per year. Price per unit is $400. Variable cost per unit is $200 and fixed costs are $150,000 per year. It is known that the depreciation expense is $180,000 per year. The engineering department estimates you will need an initial net working capital investment of $50,000. Given the base-case projections in the previous problem, what are the cash, accounting, and financial break-even sales levels for this project?
- Use the following base case information to evaluate the project: PT Kolam Makara has a project costs $900,000, has a five-year life, and has a salvage value of $130,000. Depreciation is straight-line to zero. The required return is 14% and tax rate is 34%. Sales are projected at 2350 units per year. Price per unit is $400. Variable cost per unit is $200 and fixed costs are $150,000 per year. It is known that the depreciation expense is $180,000 per year. The engineering department estimates you will need an initial net working capital investment of $50,000. What is the sensitivity of OCF to changes in the variable cost figure at base case?Use the following base case information to evaluate the project: PT Kolam Makara has a project costs $900,000, has a five-year life, and has a salvage value of $130,000. Depreciation is straight-line to zero. The required return is 14% and tax rate is 34%. Sales are projected at 2350 units per year. Price per unit is $400. Variable cost per unit is $200 and fixed costs are $150,000 per year. It is known that the depreciation expense is $180,000 per year. The engineering department estimates you will need an initial net working capital investment of $50,000. Suppose you think that the unit sales, price, variable cost, and fixed cost projections given are accurate to within 7%.1. What are the upper and lower bounds for these projections?2. What is the base-case NPV?3. What are the best- and worst- case scenario NPVs?Consider a project with the following information: Initial fixed asset investment = $540,000; straight-line depreciation to zero over the 4-year life; zero salvage value; price = $52; variable costs = $33; fixed costs = $222,000; quantity sold = 112,000 units; tax rate = 21 percent. How sensitive is OCF to changes in quantity sold?
