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Культура Документы
$2.5 billion
2.0 billion
400 million
2,500,000,000
2,000,000,000
400,000,000
100,000,000
If sales rise 15%, how much will pretax profit increase in dollar terms?
$2,500,000,000.0
15% increase in sales
2,875,000,000
15% increase in variable costs
2,300,000,000
Fixed costs
400,000,000
$175,000,000
What will be the % increase in pre-tax profit?
$175,000,000
100,000,000
75,000,000
75% increase
What explains the relationship between the % change in sales & the % change
in pre-tax profit?
The effects of operating leverage
Chapter 5
Risk Analysis in Capital Budgeting
Problem 2
page 140
Breakeven quantity
Info:
Boeing Co.
Investment in Boeing 777 airplane
4,000,000,000
Price/plane
120,000,000
PV of tax w/o
750,000,000
fixed costs per year
100,000,000
variable production costs
90,000,000 per plane
tax rate
34%
discount rate
14%
Life of the plane
15 years
What is break-even quantity?
CF's (in & out), occur at the end of the year
PVIFA 14, 15
6.1422
Breakeven Analysis
To calculate the actual breakeven point:
I0 - D
Q= PVIFAr,n (P-V)(1-t)
I0 Initial Investment
4,000,000,000.00
D PV of Depr w/o & ITC 750,000,000.00
Q annual sales
P unit sales price
120,000,000.00
V unit variable cost
90,000,000.00
F annual fixed cost
100,000,000.00
t tax rate
34%
n project life
15.00
r discount rate
14%
3.25
0.12161556
26.72
F
P-V
4.00 1,000,000,000.00
0.75
0.12
0.09
0.10
34%
0.10
0.03
3.33
Chapter 5
Risk Analysis in Capital Budgeting
Problem 5
page 140-141
Info:
American Fruit Co. constructing new plant
1 plant is capital intensive, other plant is labor intensive
Fixed cost
Variable cost (per unit)
Price (per unit)
Investment
Plant 1
$200,000
1.50
2.00
1,000,000
parts a & b
Plant 2
$600,000
0.50
2.00
1,000,000
a). Calculate the break-even point in units of production for the 2 plants
Q=
Plant 1
400,000
Q=
Plant 2
400,000
$200,000
0.50
F
(P - V)
$600,000
1.50
Normal
300,000
500,000
600,000
(450,000)
150,000
(200,000)
(50,000)
-5%
1,000,000
(750,000)
250,000
(200,000)
50,000
5%
Recession
300,000
Plant 2
sales
VC
Subtotal
FC
Return
ROA
F
(P - V)
600,000
(150,000)
450,000
(600,000)
(150,000)
-15%
Normal
500,000
1,000,000
(250,000)
750,000
(600,000)
150,000
15%
Recovery Calc the return on assets for the 2 plants under the 3 scenarios
800,000 ROA = Return/Investment
1,600,000
(1,200,000)
400,000
(200,000)
200,000
20%
Recovery
800,000
1,600,000
(400,000)
1,200,000
(600,000)
600,000
60%
Chapter 5
Risk Analysis in Capital Budgeting
Problem 6
page 141
Info:
Prepared a set of certainty-equivalent factors
to adjust the CF's for the estimated risk
Prepared a set of risk adjusted interest rates
Initial investment
$150,000
rate
8%
Year
Cash Flows (000's)
Certainty equivalents (finance dept)
Risk adjusted rates (economicsdept)
2
50
0.982
10%
75
0.964
12%
3
130
0.947
14%
a). What is the NPV of the project using the finance dept's estimates?
CF's x certainty equivalents
49.1
72.3
123.11
b). What is the NPV of the project using the economic's dept's estimates?
Cash Flows (000's)
50
75
130
Risk adjusted rates (economicsdept)
10%
12%
14%
$205.18 NPV
(150) initial investment
$55.18 (000's)
55,177
$1.10
$45.45
1.12^2
$59.79
1.14^3
$87.75
$192.99
(150)
$42.99 (000's)
42,990