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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

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