Reference no: EM13955959
Your company is considering a capital budgeting project with the following parameters:
Initial Investment = $1.5 million // Life = 5 years // Tax Rate = 40% // Required Return = 11.5% // Fixed Costs = $300,000
Contribution Margin = $35 // No salvage value or Net Working Capital
At what unit volume does the firm just cover its fixed and variable operating expenses?
0 b. 1369 c. 2858 d. 17,143
At what unit volume would the IRR of the project equal the required rate of return?
1369 b. 17,143 c. 22,428 d. 56,107
Suppose the project noted above operates at the Accounting Breakeven level of output. If unit volume were to suddenly FALL by 22%, by what percentage would Operating Cash Flow change?
a. -22% b. -26.4% c. -33.7% d. It wouldn't change at all
Suppose that the fixed assets in the project were to have a salvage value of $100,000. In this case, assuming straight-line depreciation to $0, what would be the Financial Breakeven Quantity?
a. 17,143 b. 21,974 c. 22,428 d. 31,227
- Suppose two projects are identical in all respects except (i.e. same total cash flows) that Project 1 relies more heavily on illiquid fixed assets whereas Project 2 relies more heavily on more liquid current assets and smaller investment fixed assets that can be sold off more easily. If I consider real asset options, which project is more likely to have a higher NPV?
a. Project 1 b. Project 2 c. The nature of the assets has no real bearing on NPV d. It depends upon the discount rate
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