Calculate the accounting operating profit break-even point

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Reference no: EM133065085

Question 1: You are involved in the planning process for a company that is expected to have a large increase in sales for the next year. Which type of company would benefit the most from that sales increase a company with low fixed costs and high variable costs or a company with high fixed costs and low variable costs?

Question 2: EBIT: Glenda Publications Ltd sells all of its books for $100 per book, and it currently costs $50 in variable costs to produce each text. The fixed costs, which include depreciation and amortisation for the company, are currently $2 million per year. The company is considering changing its production technology, which will increase the fixed costs for the company by 50 percent but decrease the variable costs per unit by 50 percent. If the company expects to sell 45,000 books next year, should the company switch technologies?

Use the following information for Problems 12-14, 12-15, and 12-16:
Dandle's Candles will be producing a new line of dripless candles in the coming years and has the choice of producing the candles in a large factory with a small number of workers or a small factory with a large number of workers. Each candle will be sold for $10. If the large factory is chosen, the cost per unit to produce each candle is $2.50, while it will be $7.50 for the small factory. The large factory would have fixed cash costs of $2,000,000 and a depreciation expense of $300,000 per year, while those expenses would be $500,000 and $100,000 in the small factory.

Question 3: Accounting operating profit break-even: Calculate the accounting operating profit break-even point for both factory choices for Dandle's Candles.

Question 4: Crossover level of unit sales: Calculate the number of candles for Dandle's Candles for which the accounting operating profit is the same, regardless of the factory choice.

Question 5: Pre-tax operating cash flow break-even: Calculate the pre-tax operating cash flow break-even point for both factory choices for Dandle's Candles.

Question 6: Scenario analysis: Victoria Home Brew forecasts that if it sells each bottle of HBrew for $20, then the demand for the product will be 15,000 bottles per year, whereas sales will be 90 percent as high if the price is raised 10 percent. Victoria's variable cost per bottle is $10, and the total fixed cash cost for the year is $100,000. Depreciation and amortisation charges are $20,000, and the company is in the 30 percent tax rate. The company anticipates an increased working capital need of $3,000 for the year. What will be the effect of a price increase on the company's FCF for the year?

Question 7: Profitability index: Suppose that you faced the following projects but only have $30,000 to invest. How would you make your decision and which projects would you invest in?

Project	Cost	NPV ($)
A	$ 8,000	$4,000
B	11,000	7,000
C	9,000	5,000
D	7,000	4,000

Question 8: Mick's Soft Lemonade is starting to develop a new product for which the fixed cash expenditures are expected to be $80,000. The projected EBIT is $100,000, and the Accounting DOL will be 2.0. What is the cash flow DOL for the company?

Question 9: You are analysing two proposed capital investments with the following cash flows:

Year	Project X ($)	Project Y ($)
0	$(20,000)	$(20,000)
1	13,000	7,000
2	6,000	7,000
3	6,000	7,000
4	2,000	7,000

The cost of capital for both projects is 10 percent. Calculate the profitability index (PI) for each project. Which project, or projects, should be accepted if you have unlimited funds to invest? Which project should be accepted if they are mutually exclusive?

Reference no: EM133065085

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