Calculate the operating cash flow, Financial Accounting

Assignment Help:

You are evaluating a project which costs $720,000, has a four-year life, and no salvage value. Depreciation is straight-line and the half year rule does not apply. Sales are projected at 190 units per year; price per unit will be $21,000, variable cost per unit will be $15,000 and fixed costs will be $225,000 per year. Based on your experience, you believe the unit sales, variable cost and the fixed cost projections given here are probably accurate to within ± 10 percent. The required return on the project is 15 percent and the tax rate is 35 percent. 

(a) Calculate the operating cash flow (OCF) and net present value (NPV) for the base-case, best-case and worst-case scenarios.  

(b)  Suppose that the probability of the base-case scenario is twice the probability of either the  worst-case scenario or the best-case scenario. Should the project be accepted? Why? 

(c)  How sensitive is the base-case NPV to changes in fixed costs? Illustrate your answer assuming that fixed costs increase from $225,000 to $230,000.

(d)  What is the base-case accounting break-even sales level for this project?

(e)  Calculate the degree of operating leverage (DOL) for the base-case scenario. How do you interpret this number?


Related Discussions:- Calculate the operating cash flow

Calculate the npv and arr, Calculate the NPV and ARR The manager of XY...

Calculate the NPV and ARR The manager of XYZ Ltd has identified a market for a new product that she estimates can be sold for $12 per unit. Research indicates that the busines

The balance of arndt''s retained earnings as of march 31, On December 31, 2...

On December 31, 2010, the stockholders' equity section of Arndt, Inc., was as follows: Common stock, par value $10; authorized 30,000 shares; issued and outstanding 9,000 shares $

Sugar and Spice bakery, Perform a business size-up of Sugar and Spice Baker...

Perform a business size-up of Sugar and Spice Bakery. 2. Qualitatively analyze the opportunity of closing the storefront to cater events.

Compute the total of amount of assets, Balance Sheet Classifications and Re...

Balance Sheet Classifications and Relationships: Shelley and Co. has the following balance sheet elements as of December 31, 2012. Land. . . . . . . . . . . . . . . . . . . . . . .

Prepare financial report for large accounting firm, Question: You are a...

Question: You are a member of a large accounting firm which is responsible for preparing financial reports, including statements and notes to the accounts; and for advising sta

What do you mean by bankruptcy, Q. What do you mean by Bankruptcy? Bank...

Q. What do you mean by Bankruptcy? Bankruptcy - Legal process, governed by federal statute, whereby the DEBTS of an insolventperson are liquidated after being satisfied to the

Joint Audit, Impact of joint Audit on financial reporting quality

Impact of joint Audit on financial reporting quality

Illustrations of dissolutions, Illustrations of Dissolutions X, Y and Z...

Illustrations of Dissolutions X, Y and Z have been trading as partners sharing profits and losses in the ratio of 2:2:1 on the 1st July 2005, they decided to dissolve the partn

State the relationship between return and risk, State the relationship betw...

State the relationship between return and risk This relationship between return and risk has significant implications for setting financial objectives for a business. Owners wil

Determine npv and expected market return, Using CAPM's formula, Return o...

Using CAPM's formula, Return on equity = Risk-free rate + Beta*(Expected market return - risk-free rate) With the given information, Return on equity = 1% + 0.55*(8% - 1%)

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd