ICE Comm 303 Suggested Solutions to Chapter 9 Fall 2006

ICE Comm 303 Suggested Solutions to Chapter 9 Fall 2006 - =...

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Chapter 9: Cost of Capital and Project Risk 9-5. Note: because there is no debt, the percentage change in net income is the same as the percentage change in EBIT. Further, because the net profit margin is constant, the percentage change in sales is the same as the percentage change in net income. Consequently, the operating leverage is 100.00%. Case when net profit margin decrease: Percentage change in net income: ($2.75 million -$2.5 million) ÷ $2.5 million = 10% Percentage change in sales: ($2.75 million/9% - $2.5 million/10%) ÷ ($2.5 million/10%)
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Unformatted text preview: = 22.22% Operating leverage = 10% 22.22% = 45.00% 9-10. A debt-to-equity ratio of 1.0 equates to a debt ratio and equity ratio of 50% each. WACC = 50%*11%*(1 40%) + 50%*19% = 12.80% 9-23. Fixed costs divided by the contribution margin equal the break-even point in terms of units sold. In this case $200,000,000 $1,200 = 166,667 units sold is Alliances break-even point....
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