CHP.8
1.Calculate the break-even level of sales, assuming: $1.4 million fixed costs, $400,000
depreciation expense, variable costs-to-sales ratio of 65%.
A) $2,769,231
B) $2,857,143
C) $4,000,000
D) $5,142,857
.
Break-even sales =
$1,400,000  400,000
.35
= $5,142,857
2.A firm with 60% of sales going to variable costs, $1.5 million fixed costs, and
$500,000 depreciation would show what accounting profit with sales of $3 million?
Ignore taxes.
A) zero loss
B) $370,000 loss
C) $666,667 loss
D) $800,000 loss
Revenues
$3,000,000
Variable costs
-1,800,000 (60% of sales)
Fixed costs
-1,500,000
Depreciation
-500,000
Loss
$800,000
3.Calculate the NPV break-even level of sales for a project requiring an investment of
$3,000,000 and providing as cash flows: .15 × sales less $250,000. Assume the
project will generate these cash flows for 10 years and that the discount rate is 10%.
A) $ 3,254,890
B) $ 3,504,890
C) $ 4,921,549
D) $19,686,667
PV cash flows = investment
6.14457(.15 sales - 250,000)= $3,000,000
.92169 sales - 1,536,142.50 = $3,000,000
.92169 sales = $4,536,142.50
sales = $4,921,549
4.What percentage change in sales occurs if profits increase by 3% when the firm's
degree of operating leverage is 4.5?
A) 0.33%
B) 0.67%
C) 1.5%
D) 3.33%
DOL
4.5 =
=
% change in profits
% change in sales
3%
% change in sales
4.5% change in sales
3%
=
4.5
4.5
% change in sales
= 0.67%