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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