PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
expand_more
expand_more
format_list_bulleted
Question
Chapter 10, Problem 7PS
a
Summary Introduction
To discuss: The effects in the cash flow changes.
b
Summary Introduction
To discuss: The effects in the cash flow changes.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
Answer the following lettered questions on the basis of the information in this table:
Amount of R&D,
$ Millions
Expected Rate of
Return on R&D, %
$ 10
16
20
14
30
12
40
10
50
8
60
6
Instructions: Enter your answer as a whole number.
a. If the interest-rate cost of funds is 8 percent, what is this firm's optimal amount of R&D spending?
million
%24
A project has the following estimated data:
Price = $54 per unit
Variable costs = $36 per unit
Fixed costs = $19,300
Required return = 12%
Initial investment = $23,800
Life = 4 years
Ignoring the effect of taxes, what is the:
a). Accounting break-even quantity?
b) Cash break-even quantity?
c) Financial break-even quantity?
d) Degree of operating leverage at the financial break-even level of output?
A project currently generates sales of $14 million, variable costs equal 50% of sales, and fixed costs are $28 million. The firm's tax rate
is 40%. Assume all sales and expenses are cash items.
a. What are the effects on cash flow, if sales increase from $14 million to $15.4 million? (Input the amount as positive value. Enter your
answer In dollars not In mllons.)
Cash flow
increases
by s
420,000
b. What are the effects on cash flow, if variable costs increase to 60% of sales? (Input the amount as positive value. Enter your
answer In dollars not In mlllons.)
Chapter 10 Solutions
PRIN.OF CORPORATE FINANCE
Ch. 10 - Terminology Match each of the following terms to...Ch. 10 - Project analysis True or false? a. Sensitivity...Ch. 10 - Sensitivity analysis Otobais staff (see Section...Ch. 10 - Prob. 4PSCh. 10 - Prob. 7PSCh. 10 - Scenario analysis What is the NPV of the electric...Ch. 10 - Prob. 9PSCh. 10 - Break-even analysis Break-even calculations are...Ch. 10 - Prob. 11PSCh. 10 - Prob. 12PS
Ch. 10 - Prob. 13PSCh. 10 - Break-even analysis A financial analyst has...Ch. 10 - Fixed and variable costs In a slow year, Deutsche...Ch. 10 - Operating leverage You estimate that your cattle...Ch. 10 - Prob. 17PSCh. 10 - Prob. 20PSCh. 10 - Real options Explain why options to expand or...Ch. 10 - Prob. 22PSCh. 10 - Real options True or false? a. Decision trees can...Ch. 10 - Prob. 24PSCh. 10 - Real options An auto plant that costs 100 million...Ch. 10 - Decision trees Look back at the Vegetron electric...Ch. 10 - Prob. 27PSCh. 10 - Prob. 28PSCh. 10 - Prob. 29PSCh. 10 - Prob. 32PS
Knowledge Booster
Similar questions
- You are analyzing a project and have developed the following estimates: unit sales = 2,150, price per unit = $84, variable cost per unit = $57, fixed costs per year = $13,900. The depreciation is $8,300 a year and the tax rate is 35 percent. What effect would an increase of $1 in the selling price have on the operating cash flow?arrow_forward2. An A firm has sales of $10 million, variable costs of $4 million, fixed expenses of $1.5 million, interest costs of $2 million, and a 30 percent average tax rate. a) Compute its DOL, DFL, and DCL. b) What will be the expected level of EBIT and net income if next year's sales rise 10 percent? c) What will be the expected level of EBIT and net income if next year's sales fall 20 percent?arrow_forwardCalculate the Operating Cash for this Firm:A new firm, GASFORALL, Co expects to generate Sales of $117,700. GASFORALL has variable costs of $74,800, and fixed costs of $15,300. The per-year depreciation is $3,850 and the tax rate is 35 percent. Given this info: What is the annual operating cash flow?arrow_forward
- For a certain investment project, the net present worth can be expressed as functions of sales price (X) and variable production cost Y of PW= 12,550 (2X - Y) - 8000. The base values for X and Y arc $25 and $15, respectively. If the sales price is increased 15% over the base price, how much change in NPW can be expected?(a) 10% (b) 20% (c) 13.68% (d) 21.82%arrow_forwardCreative Analysis, Inc. is currently operating at maximum capacity. Assume that all costs and net working capital vary directly with sales. The dividend payout ratio will remain constant. How much is the External Financing needed (EFN) if sales are projected to increase by 10%? Income Statement end of last year: Sales $8,500 Costs $7,960 Net Income $540 Dividends paid = $324 Balance Sheet as of end of last year: Cash Accounts Receivables Inventory Net Fixed Assets Total assets -$25.1 $156.1 O $296.5 -$67.6 O $274.9 Assets $1,600 $975 $2,425 $2,200 $7,200 Accounts Payable Long-Term Debt Common Stock Retained Earnings Total Liabilities & Equity Liabilities & Equity $2,075 425 $3000 $1,700 $7,200arrow_forwardGolden Goodness (GG) has an investment center that had the following data: Operating Income $28,000 Sales $350,000 Invested assets $175,000 PMB has set a minimum acceptable rate of return at 14%. Using the information, answer the following questions. You must include what type of number it is (%, $, etc.) Part A: What is the profit margin? Part B: What is the investment turnover? Part C: What is the return on investment? Part D: What is the residual income? Part E: Explain each of the calculations you just performed (a-d).arrow_forward
- A new firm expects to generate Sales of $124,900. POINT BLANK has variable costs of $77,500, and fixed costs of $18,000. The per-year depreciation is $4,300 and the tax rate is 35 percent. What is the annual operating cash flow?arrow_forwardYour business plan for your proposed start-up firm envisions first-year revenues of $120,000, fixed costs of $30,000, and variable costs equal to one-third of revenue.a. What are expected profits based on these expectations?b. What is the degree of operating leverage based on the estimate of fixed costs and expected profits?c. If sales are 10% below expectation, what will be the decrease in profits?d. Show that the percentage decrease in profits equals DOL times the 10% drop in sales.e. Based on the DOL, what is the largest percentage shortfall in sales relative to original expectations that the firm can sustain before profits turn negative?f. What are break-even sales at this point?g. Confirm that your answer to (f) is correct by calculating profits at the break-even level of sales.arrow_forwardAt an output level of 40,000 units, you calculate that the degree of operating leverage is 3.19. If the output rises to 44,000 units, what will the percentage change in operating cash flow be? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Percentage change in OCFarrow_forward
- Q.3. Research and development manager associated a probability of success to 60% (0.6) with a research investment at time zero being successful and generating the need for an additional $300,000 development investment at the end of year 1, which is estimated to have a probability of 90% (0.9) of successfully generating profits of $200,000 per year for years 2 through 10, assuming a washout of escalation of operating cost and sales revenue. If failure occurs after the time zero research investment, a reclamation cost of $100,000 will be realized at the end of year 1. If failure occurs after year 1 investment, the salvage value will be $250,000 at the end of year 2 for equipment salvage. To achieve a before-tax ROR of 25% in this investment, use expected NPV analysis to determine how much money can we spent on research at time zero assuming the year 10 salvage value is zero. What is the risk-free project NPV valuation?arrow_forwardIf sales increase from R80 000 per year to R120 000 per year, and if the operating leverage is 5, then net income should increase by: A. 167%. B. 100%. C. 334%. D. 250%.arrow_forward21. The Caffeine Coffee Company uses the modified internal rate of return. The firm has a cost of capital of 11 percent. The project being analyzed is as follows ($26,000 investment): n Year 1 2. 3.. Cash Flow $12,000 11,000 9,000 a. What is the modified internal rate of return? page 405 b. Assume the traditional internal rate of return on the investment is 17.5 percent. Explain why your answer in part a would be lower.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Essentials Of InvestmentsFinanceISBN:9781260013924Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.Publisher:Mcgraw-hill Education,
- Foundations Of FinanceFinanceISBN:9780134897264Author:KEOWN, Arthur J., Martin, John D., PETTY, J. WilliamPublisher:Pearson,Fundamentals of Financial Management (MindTap Cou...FinanceISBN:9781337395250Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage LearningCorporate Finance (The Mcgraw-hill/Irwin Series i...FinanceISBN:9780077861759Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan ProfessorPublisher:McGraw-Hill Education
Essentials Of Investments
Finance
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:9780134897264
Author:KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:Pearson,
Fundamentals of Financial Management (MindTap Cou...
Finance
ISBN:9781337395250
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i...
Finance
ISBN:9780077861759
Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:McGraw-Hill Education