Fundamentals of Corporate Finance
11th Edition
ISBN: 9780077861704
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Bradford D Jordan Professor
Publisher: McGraw-Hill Education
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Textbook Question
Chapter 11, Problem 12QP
Leverage [LO4] In the previous problem, suppose fixed costs are $175,000. What is the operating cash flow at 46,000 units? The degree of operating leverage?
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Students have asked these similar questions
I. What is the break- even point in dollar sales?
J. How many units must be sold to achieve a target profit of $7,500?
K. What is the margin of safety in dollars? What is the margin of safety percentage ?
L. What is the degree of operating leverage?
1.) what is the break-even in dollar sales?
2.) what is the margin of safety percentage?
3.) what is the degree of operating leverage ? (Round your answer to 2 decimal places.)
4.) using the degree of operating leverage and without changing anything, calculate the percentage change in net operating income if unit sales increase by 20% ?
[EXCEL] Payback: Refer to Problem 5. What are the payback periods for production systems 1 and 2? If the systems are mutually exclusive and the firm always chooses projects with the lowest payback period, in which system should the firm invest? please use excel.
Problem 5 info:
5. [EXCEL] Net present value: Blanda Incorporated management is considering investing in two alternative production systems. The systems are mutually exclusive, and the cost of the new equipment and the resulting cash flows are shown in the accompanying table. If the firm uses a 9 percent discount rate for production system projects, in which system should the firm invest?
Year System 1 System 2
0 −$15,000 −$45,000
1 15,000 32,000
2 15,000 32,000
3 15,000 32,000
Chapter 11 Solutions
Fundamentals of Corporate Finance
Ch. 11.1 - Prob. 11.1ACQCh. 11.1 - What are some potential sources of value in a new...Ch. 11.2 - Prob. 11.2ACQCh. 11.2 - What are the drawbacks to the various types of...Ch. 11.3 - How are fixed costs similar to sunk costs?Ch. 11.3 - What is net income at the accounting break-even...Ch. 11.3 - Why might a financial manager be interested in the...Ch. 11.4 - If a project breaks even on an accounting basis,...Ch. 11.4 - If a project breaks even on a cash basis, what is...Ch. 11.4 - Prob. 11.4CCQ
Ch. 11.5 - What is operating leverage?Ch. 11.5 - How is operating leverage measured?Ch. 11.5 - Prob. 11.5CCQCh. 11.6 - What is capital rationing? What types are there?Ch. 11.6 - Prob. 11.6BCQCh. 11 - Prob. 11.1CTFCh. 11 - Marcos Entertainment expects to sell 84,000...Ch. 11 - Delta Tool has projected sales of 8,500 units at a...Ch. 11 - What is true for a project if that project is...Ch. 11 - A capital-intensive project is one that has a...Ch. 11 - Pavloki, Inc., has three proposed projects with...Ch. 11 - Forecasting Risk [LO1] What is forecasting risk?...Ch. 11 - Sensitivity Analysis and Scenario Analysis [LO1,...Ch. 11 - Prob. 3CRCTCh. 11 - Operating Leverage [LO4] At one time at least,...Ch. 11 - Operating Leverage [LO4] Airlines offer an example...Ch. 11 - Prob. 6CRCTCh. 11 - Prob. 7CRCTCh. 11 - Prob. 8CRCTCh. 11 - Prob. 9CRCTCh. 11 - Scenario Analysis [LO2] You are at work when a...Ch. 11 - Calculating Costs and Break-Even [LO3] Night...Ch. 11 - Prob. 2QPCh. 11 - Scenario Analysis [LO2] Sloan Transmissions, Inc.,...Ch. 11 - Sensitivity Analysis [LO1] For the company in the...Ch. 11 - Sensitivity Analysis and Break-Even [LO1, 3] We...Ch. 11 - Prob. 6QPCh. 11 - Prob. 7QPCh. 11 - Calculating Break-Even [LO3] In each of the...Ch. 11 - Calculating Break-Even [LO3] A project has the...Ch. 11 - Using Break-Even Analysis [LO3] Consider a project...Ch. 11 - Calculating Operating Leverage [LO4] At an output...Ch. 11 - Leverage [LO4] In the previous problem, suppose...Ch. 11 - Operating Cash Flow and Leverage [LO4] A proposed...Ch. 11 - Cash Flow and Leverage [LO4] At an output level of...Ch. 11 - Prob. 15QPCh. 11 - Prob. 16QPCh. 11 - Sensitivity Analysis [LO1] Consider a four-year...Ch. 11 - Operating Leverage [LO4] In the previous problem,...Ch. 11 - Project Analysis [LO1, 2, 3, 4] You are...Ch. 11 - Project Analysis [LO1, 2] McGilla Golf has decided...Ch. 11 - Prob. 21QPCh. 11 - Sensitivity Analysis [LO1] McGilla Golf would like...Ch. 11 - Break-Even Analysis [LO3] Hybrid cars are touted...Ch. 11 - Break-Even Analysis [LO3] In an effort to capture...Ch. 11 - Prob. 25QPCh. 11 - Operating Leverage and Taxes [LO4] Show that if we...Ch. 11 - Scenario Analysis [LO2] Consider a project to...Ch. 11 - Sensitivity Analysis [LO1] In Problem 27, suppose...Ch. 11 - Prob. 29QPCh. 11 - Prob. 30QP
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- At an output level of 40,000 units, you calculate that the degree of operating leverage is 2.70. If output rises to 46,800 units, what will the percentage change in operating cash flow be? (Do not round your intermediate calculations.) Multiple Choice 45.90% 39.23% 48.20%arrow_forward[EXCEL]Break-even analysis: Calculate the accounting operating profit break-even point and pretax operating cash flow break-even point for each of the three production choices outlined below. Please use excel. Choice Price Unit VC FC D&A A $250 $160 $15,000 $3,000 B $55 $10 $1,100 $200 C $10 $1.50 $100 $100arrow_forwardCalculating Flotation Costs [LO4] Suppose your company needs $24 million to build a new assembly line. Your target debt-equity ratio is .75. The flotation cost for new equity is 7 percent, but the flotation cost for debt is only 3 percent. Your boss has decided to fund the project by borrowing money because the flotation costs are lower and the needed funds are relatively small.a. What do you think about the rationale behind borrowing the entire amount?b. What is your company’s weighted average flotation cost, assuming all equity is raised externally?arrow_forward
- Assume total sales of $800000, total variable costs of $400000, and total fixed costs of $300000. Of these amounts $200000 of the variable costs are product costs, and $100000 of the fixed costs are period costs. What is the degree of operating leverage? 2.00 8.00 4.00 0.25arrow_forward5. A company wishes to go ahead with one of two mutually exclusive projects, but the profit outcome from each project will depend on the strength of sales demand, as follows. Strong demand Profit $ 80,000 60,000 Project 1 Project 2 Probability of demand 0.2 Moderate demand Profit $ 50,000 25,000 0.4 Weak demand Profit/(Loss) $ (5,000) 10,000 0.4arrow_forwardCalculate Operating Leverage from the following ?Contribution = 100,000 Fixed Cost = 40,000 a. 2.5 b. 1.66 c. 0.4 d. None of thesearrow_forward
- 3. Calculating Projected Net Income [LO1]A proposed new investment has projected sales of $585,000. Variable costs are 44 percent of sales, and fixed costs are $187,000; depreciation is $51,000. Prepare a pro forma income statement assuming a tax rate of 21 percent. What is the projected net income?arrow_forward9. Product A has a selling price of P50 per unit and variable expenses of P30 per unit. If the company is past its break-even point and sales increase by P200,000, one would expect net income to increase by a. P40,000 b. P80,000 c. P120,000 d. None of these. 10. 11 sales increase from P400.000 to P450.000, and if the degree of operating leverage is 6 (contribution margin divided by net income), one would expeet net income to increase by a. 75% b. 67% c. 12.5% d. None of these.arrow_forward= $ A project has the following estimated data: price 104.00 per unit; variable costs = $60.50 per unit; fixed costs investment = $39,600.00; life = 6 years. What is the $37,500.00; required return = 8%; initial degree of operating leverage at the financial break - even level of output? a) 4.38 b) 7.38 c) 6.38 d) 3.38 e ) 5.38arrow_forward
- 4\ Management has at its disposal the following information: Price Information : P= 2400-30Q The profit-maximizing price: P=240 Dollar Find the Profit-maximizing quantity.arrow_forwardCompany XY Sales are 6 800 000 € and fixed costs are 2 400 000 €. Variable costs are 4 284 000 €. Calculate, what should company’s sales be if profit should be 60 500 € and you assume that contribution margin (%) is same as earlier?arrow_forwardPeform a sensitivity analysis by answering the following questions: A. What is the break-even point in sales dollars for RBC? B. What is the margin of safety for RBC? C. What sales dollars would be required to achieve an operating profit of $170,000? $440,000?arrow_forward
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