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W10FIN3300_CH10 Exercise

W10FIN3300_CH10 Exercise - Problem 2 You estimate that...

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FIN 3300-03 Chapter 10: Exercise Problems Winter 2010 Problem 1 Modern Artifacts can invest $3 million in a new plant for producing keepsakes. The plant has an expected life of 6 years. Fixed costs are $1.2 million per year and variable costs are 75% of sales. The plant will be depreciated straight- line over 6 years to a salvage value of zero. The firm’s tax rate is 35 percent. The firm’s opportunity cost of capital is 10%. (1) Compute the accounting break-even level of sales. (2) Compute the NPV break-even level of sales.
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Unformatted text preview: Problem 2 You estimate that Project Z has fixed cost of $700 per year, depreciation charges of $300 a year, revenue $5,000 a year, and variable costs equal to 70% of revenues. (1) What is the degree of operating leverage (DOL) of this project? (2) If sales turn out to be $5,350, what is the percentage change in sales? (3) When sales are $5,000, EBIT = __________________________________ When sales are $5,350, EBIT = __________________________________ Percentage change in EBIT = ____________________________________...
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