Problem 11.07 – Calculating Break-Even
Fundamentals of Corporate Finance
Ross, Westerfield, and Jordan
13th Edition
Find the accounting break-even and the cash break-even points for the cases.
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Find the accounting break-even and the cash break-even points for the cases.
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Figure out the unknown variables.
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Find the accounting break-even, cash break-even, financial break-even, and the degree of operating leverage.
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What is the financial break-even quantity?
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Figure out what the percentage change in operating cash flow will be if output rises, then find out if the new operating leverage will be lower or higher.
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Find the degree of operating leverage, what will be the increase in operating cash flow, and the new degree of operating leverage.
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Find the fixed costs and the operating cash flow. (May ask for DOL)
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Find the sensitivity of the operating cash flow based on changes in quantity.
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Find upper and lower bounds for projections, base-case NPV, best-case and worst-case scenarios, the sensitivity of base-case NPV to changes in fixed costs, the cash break-even level, the accounting break-even level, and the degree of operating leverage.
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Figure out the payback period, NPV, and IRR.
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