Project Analysis and Operating Leverage Assignment………………..


Question 2.We are evaluating a project that costs $748,000, has a 15-year life, and has no salvage value. Assumethat depreciation is straight-line to zero over the life of the project. Sales are projected at 142,000 unitsper year. Price per unit is $39, variable cost per unit is $21, and fixed costs are $760,716 per year. Thetax rate is 34 percent, and we require a 14 percent return on this project.Suppose the projections given for price, quantity, variable costs, and fixed costs are all accurate to within+/-12 percent. The best-case NPV is $ and worst-case NPV is $.(Negative amount should be indicated by a minus sign. Round your answers to the nearest whole dollaramount. (e.g., 32).Question 7.At an output level of 15,000 units, you have calculated that the degree of operating leverage is 2.5. Theoperating cash flow is $30,000 in this case. Ignoring the effect of taxes, fixed costs amount to $. If outputrises to 17,000 units, the operating cash flow will be $. If output falls to 13,500 units, the operating cashflow will be $.(Round your answers to the nearest whole dollar amount. (e.g., 32).)Question 10.McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $800 per set and have avariable cost of $500 per set. The company has spent $185,000 for a marketing study that determinedthe company will sell 77,000 sets per year for seven years. The marketing study also determined that thecompany will lose sales of 16,000 sets of its high-priced clubs. The high-priced clubs sell at $1,200 andhave variable costs of $1,000. The company will also increase sales of its cheap clubs by 17,000 sets.The cheap clubs sell for $500 and have variable costs of $300 per set. The fixed costs each year will be$9,240,000. The company has also spent $1,294,000 on research and development for the new clubs.The plant and equipment required will cost $22,000,000 and will be depreciated on a straight-line basis.The new clubs will also require an increase in net working capital of $1,242,000 that will be returned atthe end of the project. The tax rate is 38 percent, and the cost of capital is 10 percent.McGilla Golf would like to know the sensitivity of NPV to changes in the price of the new clubs and thequantity of new clubs sold. The sensitivity of the NPV to changes in the price is $ and the sensitivity ofthe NPV to the quantity sold is $.(Do not include the dollar signs ($). Round your answers to 2 decimal places. (e.g., 32.16))Question 15.Night Shades Inc. (NSI) manufactures biotech sunglasses. The variable materials cost is $1.61 per unit,and the variable labor cost is $2.68 per unit.a. The variable cost per unit is $. (Do not include the dollar sign ($). Round your answer to 2 decimalplaces. (e.g., 32.16))b. Suppose NSI incurs fixed costs of $570,000 during a year in which total production is 342,000 units.The total costs for the year are $.c. If the selling price is $8.1 per unit, the cash break-even point is units. If depreciation is $171,000 peryear, the accounting break-even point is units. (Round your answers to 2 decimal places. (e.g.,32.16))Question 17.K-Too Everwear Corporation can manufacture mountain climbing shoes for $17.72 per pair in variableraw material costs and $15.3 per pair in variable labor expense. The shoes sell for $109 per pair. Lastyear, production was 150,000 pairs. Fixed costs were $700,000. Total production costs were $. Themarginal cost is $ per pair. The average cost is $ per pair. If the company is considering a one-time orderfor an extra 9,000 pairs, the minimum acceptable total revenue from the order is $. (Round your answersto 2 decimal places. (e.g., 32.16))Question 19.Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine Acosts $2,360,000 and will last for 6 years. Variable costs are 38 percent of sales, and fixed costs are$123,000 per year. Machine B costs $4,510,000 and will last for 8 years. Variable costs for this machineare 28 percent of sales and fixed costs are $77,000 per year. The sales for each machine will be$9,020,000 per year. The required return is 10 percent and the tax rate is 35 percent. Both machines willbe depreciated on a straight-line basis. If the company plans to replace the machine when it wears outon a perpetual basis, the EAC for machine A is $ and the EAC for machine B is $. Therefore, you shouldchoose machine . (Negative amounts should be indicated by a minus sign. Round your answers to thenearest whole dollar amount. (e.g., 32))

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