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Business Finance Answers_Part_53

Business Finance Answers_Part_53 - CHAPTER 11 B-209 The...

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CHAPTER 11 B-209 The percentage change in OCF is: % OCF = 2.35(.10) % Δ OCF = .2350 or 23.50% So, the operating cash flow at this level of sales will be: OCF = $43,000(1.235) OCF = $53,105 If the output falls to 9,000 units, the percentage change in quantity sold is: % Q = (9,000 – 10,000)/10,000 % Δ Q = –.10 or –10.00% The percentage change in OCF is: % OCF = 2.35(–.10) % Δ OCF = –.2350 or –23.50% So, the operating cash flow at this level of sales will be: OCF = $43,000(1 – .235) OCF = $32,897 15. Using the equation for DOL, we get: DOL = 1 + FC/OCF At 11,000 units DOL = 1 + $58,050/$53,105 DOL = 2.0931 At 9,000 units DOL = 1 + $58,050/$32,895 DOL = 2.7647 Intermediate 16. a . At the accounting breakeven, the IRR is zero percent since the project recovers the initial investment. The payback period is N years, the length of the project since the initial investment is exactly recovered over the project life. The NPV at the accounting breakeven is: NPV = I [(1/N)(PVIFA R%,N ) – 1] b . At the cash breakeven level, the IRR is –100 percent, the payback period is negative, and the NPV is negative and equal to the initial cash outlay.
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