CHAPTER 11
B-217
Using the bottom up OCF calculation, we get:
OCF = NI + Depreciation = $4,005,000 + 3,200,000
OCF = $7,205,000
The NPV at this quantity is:
NPV = –$22,400,000 – $1,250,000 + $7,205,000(PVIFA
10%,7
) + $1,250,000/1.10
7
NPV = $12,068,405.23
So, the sensitivity of the NPV to changes in the quantity sold is:
NPV/
Q = ($10,841,563.69 – 12,068,405.23)/(51,000 – 52,000)
NPV/
Q = $1,226.84
For an increase (decrease) of one set of clubs sold per year, the NPV increases (decreases) by $1,226.84.
23.
a.
First we need to determine the total additional cost of the hybrid. The hybrid costs more to
purchase and more each year, so the total additional cost is:
Total additional cost = $5,450 + 6($400)
Total additional cost = $7,850
Next, we need to determine the cost per mile for each vehicle. The cost per mile is the cost per
gallon of gasoline divided by the miles per gallon, or:
Cost per mile for traditional = $3.60/23
Cost per mile for traditional = $0.156522
Cost per mile for hybrid = $3.60/25
Cost per mile for hybrid = $0.144000
So, the savings per mile driven for the hybrid will be:
Savings per mile = $0.156522 – 0.144000
Savings per mile = $0.012522
We can now determine the breakeven point by dividing the total additional cost by the savings per
mile, which is:
Total breakeven miles = $7,850 / $0.012522
Total breakeven miles = 626,910
So, the miles you would need to drive per year is the total breakeven miles divided by the number
of years of ownership, or:
Miles per year = 626,910 miles / 6 years
Miles per year = 104,485 miles/year