5. Thad Morgan, a motorcycle enthusiast, has been exploring the possibility of relaunching the Western Hombre brand of cycle that was popular in the 1930s. The retro-look cycle would be sold for $19,000 and at that price, Thad estimates 500 units would be sold each year. The variable cost to produce and sell the cycles would be $15,200 per unit. The annual fixed cost would be $1,520,000. a What is the break e ven in unit caloc?
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C.) what is the degree of operating leverage? ( round answer to 2 decimal places )
Given sale units = 500
Sale price = $19,000 per unit
Variable cost = $15,200 per unit
Contribution margin = Sales - Variable cost = $3,800 per unit
Total contribution = 3,800 × 500 units = $1,900,000
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- A1 fx Chapter 5: Applying Excel A В 1 Chapter 5: Applying Excel 2 3 Data 20,000 units $60 per unit $45 per unit $270,000 4 Unit sales 5 Selling price per unit 6 Variable expenses per unit 7 Fixed expenses 8 9 Enter a formula into each of the cells marked with a ? below 10 Review Problem: CVP Relationships 11 12 Compute the CM ratio and variable expense ratio 13 Selling price per unit 14 Variable expenses per unit 15 Contribution margin per unit $60 per unit 45 per unit $15 per unit 16 17 CM ratio 25% 18 Variable expense ratio 75% 19 20 Compute the break-even 18,000 units $1,080,000 21 Break-even in unit sales 22 Break-even in dollar sales 23 24 Compute the margin of safety 25 Margin of safety in dollars 26 Margin of safety percentage 120,000 10% 27 28 Compute the degree of operating leverage $ 1,200,000 900,000 300,000 $270,000 $ 29 Sales 30 Variable expenses 31 Contribution margin 32 Fixed expenses 33 Net operating income 30,000 34 35 Degree of operating leverage 10.00 36 %24XYZ Corporation is considering a new product line. They believe the new product can be sold for $10 per unit and will have the following demand over the next 3 years: 10,000 units in year 1, 15,000 in year 2 and 17,000 in year three. The incremental costs of these products will consume 50% of the sale price. The new line will require a machine be purchased today for $60,000 and depreciated using the straight line method over the life of the machine with a salvage value of zero. The project will utilize $30,000 in net working capital and the company’s tax rate is 30%. Which of the following are true regarding the project’s relevant cash flows for year 0, 1, 2, 3. I, II & III are correct b. I. The company’s year zero cash flow is (-$60000) c. II. The company’s cash flow in year 1 is $41,000 d. II & III are correct e. III. The company’s cash flow in year 3 is 65,500Bailey, Inc., is considering buying a new gang punch that would allow them to produce circuit boards more efficiently. The punch has a first cost of $125,000 and a useful life of 15 years. At the end of its useful life, the punch has no salvage value. Labor costs would increase $1,500 per year using the gang punch, but raw material costs would decrease $10,000 per year. MARR is 5%/year. Part a Your answer is incorrect. What is the internal rate of return of this investment? % Carry all interim calculations to 5 decimal places and then round your final answer to 1 decimal place. The tolerance is ±0.2.
- Amazon is considering using high capacity drones that would make its product deliveries more efficient. For this project, $113,000 would need to be spent right away to buy the required fleet of drones. The drones will be losing their economic value in equal amount each year, fully over their 5-year economic lives. Once the drones' economic life is over, they would all be sold for $8,500 selling price to a new owner, and Amazon would then immediately purchase the same but brand-new drones for the same price as what it paid for the initial fleet of drones. When those drones' life is over, they would again be sold and, again, brand-new ones would be purchased - all for the same prices as for the initial drones, and so on, over and over. Additional information: • Amazon expects $9,200 in annual operating costs. • All future cash flows are year-end cash flows. ● Amazon pays 25 percent tax rate on all taxable income. Amazon requires an annual discount rate of 9 percent, and the rate is not…Beryl’s Iced Tea currently rents a bottling machine for $50,000 per year, including all maintenance expenses. It is considering purchasing a machine instead, and is comparing two options: Purchase the machine it is currently renting for $150,000. This machine will require $20,000 per year in ongoing maintenance expenses. Purchase a new, more advanced machine for $250,000. This machine will require $15,000 per year in ongoing maintenance expenses and will lower bottling costs by $10,000 per year. Also, $35,000 will be spent upfront in training the new operators of the machine. Suppose the appropriate discount rate is 8% per year and the machine is purchased today. Maintenance and bottling costs are paid at the end of each year, as is the rental of the machine. Assume also that the machines will be depreciated via the straight-line method over seven years and that they have a 10-year life with a negligible salvage value. The marginal corporate tax rate is 35%. Should Beryl’s Iced…Amazon is considering using high capacity drones that would make its product deliveries more efficient. For this project, $140,000 would need to be spent right away to buy the required fleet of drones. The drones will be losing their economic value in equal amount each year, fully over their 5-year economic lives. Once the drones' economic life is over, they would all be sold for $10,300 selling price to a new owner, and Amazon would then immediately purchase the same but brand-new drones for the same price as what it paid for the initial fleet of drones. When those drones' life is over, they would again be sold and, again, brand-new ones would be purchased - all for the same prices as for the initial drones, and so on, over and over. Additional information: • Amazon expects $10,100 in annual operating costs. . All future cash flows are year-end cash flows. • Amazon pays 24 percent tax rate on all taxable income. • Amazon requires an annual discount rate of 10 percent, and the rate is…
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- Beryl's Iced Tea currently rents a bottling machine for $55,000 per year, including all maintenance expenses. It is considering purchasing a machine instead and is comparing two options: a. Purchase the machine it is currently renting for $160,000. This machine will require $20,000 per year in ongoing maintenance expenses. b. Purchase a new, more advanced machine for $260,000. This machine will require $17,000 per year in ongoing maintenance expenses and will lower bottling costs by $13,000 per year. Also, $40,000 will be spent up front to train the new operators of the machine. Suppose the appropriate discount rate is 7% per year and the machine is purchased today. Maintenance and bottling costs are paid at the end of each year, as is the cost of the rental machine. Assume also that the machines will be depreciated via the straight-line method over seven years and that they have a 10-year life with a negligible salvage value. The marginal corporate tax rate is 25%. Should Beryl's Iced…Beryl's Iced Tea currently rents a bottling machine for $50,000 per year, including all maintenance expenses. It is considering purchasing a machine instead and is comparing two options: a. Purchase the machine it is currently renting for $155,000. This machine will require $23,000 per year in ongoing maintenance expenses. b. Purchase a new, more advanced machine for $260,000. This machine will require $17,000 per year in ongoing maintenance expenses and will lower bottling costs by $14,000 per year. Also, $36,000 will be spent up front to train the new operators of the machine. Suppose the appropriate discount rate is 9% per year and the machine is purchased today. Maintenance and bottling costs are paid at the end of each year, as is the cost of the rental machine. Assume also that the machines will be depreciated via the straight-line method over seven years and that they have a 10-year life with a negligible salvage value. The marginal corporate tax rate is 20%. Should Beryl's Iced…You are the financial analyst for furniture manufacturer. The company is considering using a certain new raw material in its furniture. The company has estimated the information in the following table about the market for a chair with the new material. The company expects to sell the chair for six years. The equipment required for the project has no salvage value. The required return for projects of this type is 13 percent, and the company has a 40 percent tax rate. Pessimistic Expected Optimistic Market size 130,000 150,000 165,000 Market share 21% 25% 28% Selling price $140 $145 $150 Variable costs per unit $102 $98 $94 Fixed costs per year $1,015,000 $950,000 $900,000 Initial investment $2,200,000 $2,100,000 $2,000,000 Required: Should you recommend the project?