1. A project has the following estimated data: price = $53 per unit; variable co
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Question
1.
A project has the following estimated data: price = $53 per unit; variable costs = $19.61 per unit; fixed costs = $5,200; required return = 11 percent; initial investment = $12,000; life = six years. Ignore the effect of taxes.
What is the degree of operating leverage at the financial break-even level of output? (Do not round your intermediate calculations.)
2.
At an output level of 48,000 units, you calculate that the degree of operating leverage is 1.60. If output rises to 73,920 units, what will the percentage change in operating cash flow be? (Do not round your intermediate calculations.)
rev: 09_18_2012
86.40%
56.10%
90.72%
88.99%
82.08%
3.
The contribution margin per unit is equal to the:
Aftertax profit per unit.
5.
Wilson’s Market is reviewing a project with sales of 6,200 units plus or minus 2 percent at a sales price of $29 plus or minus 1 percent per unit. The expected variable cost per unit is $11 plus or minus 3 percent and the expected fixed costs are $87,000plus or minus 1 percent. The depreciation expense is $68,000 and the tax rate is 35 percent. What is the net income under the worst-case scenario?
A project has the following estimated data: price = $53 per unit; variable costs = $19.61 per unit; fixed costs = $5,200; required return = 11 percent; initial investment = $12,000; life = six years. Ignore the effect of taxes.
Explanation / Answer
Question Answer 1.a 156 units Fixed Cost/Contribution per unit =5200/(53-19.61) =5200/33.39=156 units 1.b 216 units Fixed Cost 5200 Annual Depreciation cost 2000 Total Fixed cost 7200 Break even quantity = 7200/33.39 = 216 units 1.c 193 units Fixed Cost 5200 Add: Required Return 1320 Total Contribution 6520 Break even unit = 195 1.d 4.94 Total Contribution/financial return =6520/1320=4.94 Q.2 86% %change in Operating Income/%change in Sales %age change in sales = (73920-48000)/48000=0.54 So %change in Operating income/0.54 = 1.60 OR %change in operating income = 1.60 x 0.54 = 0.86 Q.3 Sales price per unit minus the variable cost per unit. Q.5 $ (32,674.93) Best Worse Sales Units 6324 6076 Sales Price 29.29 28.71 Variable Cost Per unit 10.67 11.33 Contribution per unit 18.62 17.38 Total Contribution 117752.9 105600.9 Fixed Cost 86130 87870 Depreciation 68000 68000 Income before tax -36377.1 -50269.1 Less: Tax @35% -12732 -17594.2 Net Loss -23645.1 -32674.9
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