Concept explainers
A
Adequate information:
Cost of the project is
Expected sales are
Price per unit is
Variable cost is
Fixed cost is
Required rate of return is
Tax rate is
To compute: Upper and Lower bounds for the projections, base-case NPV, best-case, and worst-case scenarios.
Introduction: Lower bound is a value that is each data set's element's value minus one or the same. An upper bound is a number that exceeds or is equal to each data element in a set. The current value of a future stream of payments from a business, project, or investment is determined using net present value, or NPV. The best-case scenario is any circumstance or result that could not possibly be better; the ideal result. The worst-case scenario takes into account the direst or extreme result that could occur in a particular circumstance.
B
Adequate information:
Base-case NPV was
To compute: Evaluating the sensitivity of base-case NPV to changes in fixed costs.
Introduction: The current value of a future stream of payments from a business, project, or investment is determined using net present value, or NPV. Fixed costs are outlaid that a business must cover regardless of the particular commercial activities it engages in.
C
Adequate information:
Fixed cost is
Contribution is
Depreciation is
To compute: Accounting break-even level of output
Introduction: The sales level at which a company makes exactly zero profits, given a set amount of fixed costs that it must cover each month, is known as the accounting breakeven point.
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Corporate Finance
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