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81.
The Motor Works is considering an expansion project with estimated annual
fixed costs of $71,000, depreciation of $38,500, variable costs per unit of
$17.90 and an estimated sales price of $26.50 per unit. How many units
must the firm sell to break-even on a cash basis?
82.
A proposed project has a contribution margin per unit of $13.10, fixed costs
of $74,000, depreciation of $12,500, variable costs per unit of $22, and a
financial break-even point of 11,360 units. What is the operating cash flow
at this level of output?
83.
Cantor's has been busy analyzing a new product. Thus far, management has
determined that an OCF of $218,200 will result in a zero net present value
for the project, which is the minimum requirement for project acceptance.
The fixed costs are $329,000 and the contribution margin per unit is $211.
The company feels that it can realistically capture 2.5 percent of the
110,000 unit market for this product. The tax rate is 34 percent and the
required rate of return is 11 percent. Should the company develop the new
product? Why or why not?
84.
Tucker's Trucking is considering a project with a discounted payback period
just equal to the project's life. The projections include a sales price of $38,
variable cost per unit of $18.50, and fixed costs of $32,000. The operating
cash flow is $19,700. What is the break-even quantity?
2.64. What will happen to the operating cash flows if the number of units
you sell increase by 4 percent?
86.
The accounting manager of Gateway Inns has noted that every time the
inn's average occupancy rate increases by 2 percent, the operating cash
flow increases by 5.3 percent. What is the degree of operating leverage if
the contribution margin per unit is $47?
87.
Steele Insulators is analyzing a new type of insulation for interior walls.
Management has compiled the following information to determine whether
or not this new insulation should be manufactured. The insulation project
has an initial fixed asset requirement of $1.3 million, which would be
depreciated straight-line to zero over the 12-year life of the project.
Projected fixed costs are $769,000 and the anticipated annual operating
cash flow is $241,000. What is the degree of operating leverage for this
project?
88.
You are the manager of a project that has a 2.8 degree of operating
leverage and a required return of 14 percent. Due to the current state of the
economy, you expect sales to decrease by 7 percent next year. What change
should you expect in the operating cash flows next year given your sales
prediction?
89.
Cool Shades, Inc. (CSI) manufactures biotech sunglasses. The variable
materials cost is $1.69 per unit, and the variable labor cost is $3.04 per unit.
Suppose the firm incurs fixed costs of $750,000 during a year in which total
production is 450,000 units and the selling price is $11.50 per unit. What is
the cash break-even point?
90.
Mountain Gear can manufacture mountain climbing shoes for $15.25 per
pair in variable raw material costs and $18.46 per paid in variable labor
costs. The shoes sell for $135 per pair. Last year, production was 170,000
pairs and fixed costs were $830,000. What is the minimum acceptable total
revenue the company should accept for a one-time order for an extra 10,000
pairs?
91.
We are evaluating a project that costs $854,000, has a 15-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 154,000 units per year. Price per
unit is $41, variable cost per unit is $20, and fixed costs are $865,102 per
year. The tax rate is 33 percent, and we require a 14 percent return on this
project. Suppose the projections given for price, quantity, variable costs,
and fixed costs are all accurate to within ±14 percent. What is the worst-
case NPV?
92.
A project has a unit price of $5,000, a variable cost per unit of $3,750, fixed
costs of $17,000,000, and depreciation expense of $6,970,000. What is the
accounting break-even quantity?
93.
A project has the following estimated data: price = $74 per unit; variable
costs = $39.22 per unit; fixed costs = $6,500; required return = 8 percent;
initial investment = $8,000; life = 4 years. Ignore the effect of taxes. What is
the degree of operating leverage at the financial break-even level of
output?
94.
Consider a project with the following data: accounting break-even quantity
= 29,000 units; cash break-even quantity = 16,250 units; life = 10 years;
fixed costs = $203,000; variable costs = $24 per unit; required return = 14
percent; depreciation = straight line. Ignoring the effect of taxes, what is
the financial break-even quantity?
