Questions

9.9

Chapter 9
Question 9
Input area:
Sales price $ 52.25
Variable costs $ 14.60
Fixed costs $ 580,000
Depreciation $ 65,000
Tax rate 21%
Discount rate 13%
Initial investment $ 455,000
Life of project 7
Output area: Complete the empty boxes below.
Accounting breakeven
EAC
Financial breakeven

9.12

Chapter 9
Question 12
Input area:
Initial fixed assets $ 385,000
Life of project (yrs) 4
Price $ 26
Variable costs $ 17
Fixed costs $ 395,000
Quantity sold 73,000
Tax rate 22%
Change in quantity 1,000
Output area: Complete the empty boxes below.
OCF at units
OCF at units
Cash flow sensitivity

9.21

Chapter 9
Question 21
Input area:
Cash offered today $ 50,000
Percentage of profits offered 1%
Probability script is bad
and is not made into a movie 90%
Probability a movie is made
and the movie is bad 70%
Payoff if movie is good $ 120,000,000
Output area: Complete the empty boxes below.
Value if movie is good and there is a big audience
Value if movie is good, there is a big audience, and the script is good
Percentage of profits if movie is good, there is a big audience, and the script is good
Big audience
Probability = Payoff =
Movie is good
Probability = Make movie
Script is good Movie is bad
Read script Probability = Small audience
Script is bad Payoff =
Probability = Don’t make movie
No profit
The screenwriter should take

9.25

Chapter 9
Question 25
Input area:
Life of project 5
Discount rate 13%
Tax rate 23%
Pessimistic Expected Optimistic
Market size 81,000 97,000 112,000
Market share 14% 17% 19%
Selling price $ 110 $ 116 $ 119
Variable costs per year $ 38 $ 36 $ 34
Fixed costs per year $ 615,000 $ 575,000 $ 550,000
Initial investment $ 1,550,000 $ 1,450,000 $ 1,350,000
Output area: Complete the table below.
Pessimistic Expected Optimistic
Units per year
Revenue
Variable costs
Fixed costs
Depreciation
EBT
Tax
Net income
OCF
NPV