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QUESTION

# 1.A project has the following estimated data: price = \$79 per unit; variable costs = \$41.87 per unit; fixed costs = \$6,900; required return = 9 percent; initial investment = \$10,000; life = six years.

1.A project has the following estimated data: price = \$79 per unit; variable costs = \$41.87 per unit; fixed costs = \$6,900; required return = 9 percent; initial investment = \$10,000; life = six years. Ignore the effect of taxes.

a. What is the accounting break-even quantity?   b. What is the cash break-even quantity?   c. What is the financial break-even quantity?

d. What is the degree of operating leverage at the financial break-even level of output?

2. Consider the following cases: CaseUnit PriceUnit VariableCostFixed CostsDepreciation1\$ 4,000         \$ 2,960         \$ 15,000,000       \$ 6,300,000       236         26.28         15,000       36,000       39         3.38         1,000       800        Ignore any tax effects in calculating the cash break-even. 1a. Calculate the cash break-even point of Case 1.

1b. Calculate the accounting break-even point of Case 1.

2a. Calculate the cash break-even point of Case 2.

2b. Calculate the accounting break-even point of Case 2.

3a. Calculate the cash break-even point of Case 3.

3b. Calculate the accounting break-even point of Case 3.

3. A project that provides annual cash flows of \$12,300 for 11 years costs \$79,889 today. a. If the required return is 14 percent, what is the NPV for this project?

b. Determine the IRR for this project.

4. Bruin, Inc., has identified the following two mutually exclusive projects: YearCash Flow (A)Cash Flow (B)0–\$36,200       –\$36,200       118,700       6,300       214,200       12,800       311,700       19,300       48,700       23,300       a. What is the IRR for Project A?

b. What is the IRR for Project B?

c. If the required return is 10 percent, what is the NPV for Project A?  d. If the required return is 10 percent, what is the NPV for Project B?  e. At what discount rate would the company be indifferent between these two projects?

5. Consider the following two mutually exclusive projects: YearCash Flow (A)Cash Flow (B)0–\$198,945       –\$16,266         127,500       5,697         252,000       8,817         354,000       13,658         4394,000       8,382          Whichever project you choose, if any, you require a 6 percent return on your investment. a. What is the payback period for Project A?

b. What is the payback period for Project B?

c. What is the discounted payback period for Project A?

d. What is the discounted payback period for Project B?

e. What is the NPV for Project A?

f. What is the NPV for Project B ?

g. What is the IRR for Project A?

h. What is the IRR for Project B?

i. What is the profitability index for Project A?

j. What is the profitability index for Project B?