Business Finance Answers_Part_53

Business Finance - CHAPTER 11 B-209 The percentage change in OCF is%OCF = 2.35.10%OCF =.2350 or 23.50 So the operating cash flow at this level of

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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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B-210 SOLUTIONS c . The definition of the financial breakeven is where the NPV of the project is zero. If this is true, then the IRR of the project is equal to the required return. It is impossible to state the payback period, except to say that the payback period must be less than the length of the project. Since the
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This document was uploaded on 10/31/2011 for the course FIN 3403 at University of Florida.

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Business Finance - CHAPTER 11 B-209 The percentage change in OCF is%OCF = 2.35.10%OCF =.2350 or 23.50 So the operating cash flow at this level of

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