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wrote...
Posts: 178
A week ago
Use the table for the question(s) below.

Year 0Years 1 to 10
Revenues3.50
-Manufacturing Expenses-0.5
-Marketing Expenses-0.25
-Depreciation-0.8
=EBIT1.95
-Taxes (40%)-0.78
=Unlevered net income1.17
+Depreciation+0.8
-Additions to Net Working Capital-0.2
-Capital Expenditures-8.00
=Free Cash Flow1.77


Panjandrum Industries, a manufacturer of industrial piping, is evaluating whether it should expand into the sale of plastic fittings for home garden sprinkler systems. It has made the above estimates of free cash flows resulting from such a decision. There are concerns of the sensitivity of this project to changes in the cost of capital. For what cost of capital does this project break-even?

▸ 18%

▸ 16%

▸ 14%

▸ 12%
Textbook 
Fundamentals of Corporate Finance
Edition: 2nd
Authors:
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Answer verified by a subject expert
wrote...
Posts: 197
A week ago
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18%
1
Related Topics
wrote...
A week ago
Use the table for the question(s) below.

Year 0Years 1 to 10
Revenues3.50
-Manufacturing Expenses-0.5
-Marketing Expenses-0.25
-Depreciation-0.8
=EBIT1.95
-Taxes (40%)-0.78
=Unlevered net income1.17
+Depreciation+0.8
-Additions to Net Working Capital-0.2
-Capital Expenditures-8.00
=Free Cash Flow1.77


Panjandrum Industries, a manufacturer of industrial piping, is evaluating whether it should expand into the sale of plastic fittings for home garden sprinkler systems. It has made the above estimates of free cash flows resulting from such a decision (all quantities in millions of dollars). There are some concerns that estimates of manufacturing expenses may be low, due to the rising cost of raw materials. What is the break-even point for manufacturing expenses, if all other estimates are correct and the cost of capital is 10%?

▸ $1.22 million

▸ $0.78 million

▸ $0.88 million

▸ $0.97 million
Woo
wrote...
A week ago
$0.78 million
wrote...
A week ago
This calls for a celebration Person Raising Both Hands in Celebration
wrote...
A week ago
Use the table for the question(s) below.

Year 0Years 1 to 10
Revenues3.50
-Manufacturing Expenses-0.5
-Marketing Expenses-0.25
-Depreciation-0.8
=EBIT1.95
-Taxes (40%)-0.78
=Unlevered net income1.17
+Depreciation+0.8
-Additions to Net Working Capital-0.2
-Capital Expenditures-8.00
=Free Cash Flow1.77


Panjandrum Industries, a manufacturer of industrial piping, is evaluating whether it should expand into the sale of plastic fittings for home garden sprinkler systems. It has made the above estimates of free cash flows resulting from such a decision (all quantities in millions of dollars).  It is thought that if marketing expenses are increased by 40%, then revenues will rise. By how much will revenues have to rise for the net present value (NPV) of the project to increase?

▸ at least 3.2%

▸ at least 2.9%

▸ at least 3.8%

▸ at least 2.0%
all is normal
wrote...
A week ago
at least 2.9%
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