Chapter 11
Question 16
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Chapter 11
Questions 17-18
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Chapter 11
Question 19
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Upper bound Lower bound
Chapter 11
Question 20
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Initial cash outlay
Plant & Equipment (29,400,000)$
New club sales 45,375,000$
High-priced sales lost (11,000,000)
Cheap sales gained 4,920,000
Total sales 39,295,000$
New club VC (21,725,000)$
High-priced VC saved 6,500,000
Cheap club VC (2,220,000)
Total VC (17,445,000)$
Total Sales 39,295,000$
Total VC 17,445,000
Fixed costs 9,200,000
Net income 5,070,000$
Cash flows
Price per unit 825$
Variable cost per unit 395$
Marketing study 150,000$ Sunk cost
Unit sales 55,000
High price units lost 10,000
High price club’s price 1,100$
High price club’s VC 650$
Cheap club’s price 410$
Cheap club’s VC 185$
Fixed costs 9,200,000$
Project cost 29,400,000$
Net working capital 1,400,000$
Tax rate 40%
Cost of capital 10%
Chapter 11
Question 21
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Unit sales (new clubs) 60,500 49,500
Price (new clubs) 908$ 743$
VC (new clubs) 356$ 435$
Fixed cost 8,280,000$ 10,120,000$
Sales lost (high-priced) 9,000 11,000
Sales gained (cheap) 13,200 10,800
Initial cash outlay
Plant & Equipment (29,400,000)$
New club sales 54,903,750$ 36,753,750$
High-priced sales lost (9,900,000) (12,100,000)
Cheap sales gained 5,412,000 4,428,000
Total sales 50,415,750$ 29,081,750$
New club VC (21,507,750)$ (21,507,750)$
High-priced VC saved 5,850,000 7,150,000
Cheap club VC (2,442,000) (1,998,000)
Total VC (18,099,750)$ (16,355,750)$
Total Sales 50,415,750$ 29,081,750$
Total VC 18,099,750 16,355,750
Fixed costs 8,280,000 10,120,000
Net income 11,901,600$ (956,400)$
Cash flows
tCash Flow Cash Flow
Project cost 29,400,000$
Unit sales 55,000
Price per unit 825$
Variable cost per unit 395$
Fixed costs 9,200,000$
Lost high price units lost 10,000
High price club’s price 1,100$
High price club’s VC 650$
Cheap club units gained 12,000
Cheap club’s price 410$
Cheap club’s VC 185$
Marketing study 150,000$ Sunk cost
Net working capital 1,400,000$
Tax rate 40%
Cost of capital 10%
Chapter 11
Question 22
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Initial cash outlay
Plant & Equipment (29,400,000)$
New club sales 46,750,000$ 46,200,000$
High-priced sales lost (11,000,000) (11,000,000)
Cheap sales gained 4,920,000 4,920,000
Total sales 40,670,000$ 40,120,000$
New club VC (21,725,000)$ (22,120,000)$
High-priced VC saved 6,500,000 6,500,000
Cheap club VC (2,220,000) (2,220,000)
Total VC (17,445,000)$ (17,840,000)$
Total Sales 40,670,000$ 40,120,000$
Total VC 17,445,000 17,840,000
Fixed costs 9,200,000 9,200,000
Net income 5,895,000$ 5,328,000$
Cash flows
Project cost 29,400,000$
Unit sales 55,000
Price per unit 825$
Fixed costs 9,200,000$
Lost high price units lost 10,000
High price club’s price 1,100$
High price club’s VC 650$
Cheap club units gained 12,000
Cheap club’s price 410$
Cheap club’s VC 185$
Marketing study 150,000$ Sunk cost
Net working capital 1,400,000$
Tax rate 40%
Cost of capital 10%
New price 850$
New quantity 56,000
Chapter 11
Question 23
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Chapter 11
Question 24
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Chapter 11
Question 25
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a. From the tax shield definition of OCF:
b. Depreciation 700,000$
Chapter 11
Question 26
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Chapter 11
Question 27
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Chapter 11
Question 28
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Chapter 11
Question 29
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Chapter 11
Question 30
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