1.A project has the following estimated data: price = $79 per unit; variable costs = $41.87 per unit; fixed costs = $6,900; required return = 9 percent; initial investment = $10,000; life = six years. Ignore the effect of taxes.

**a.** What is the accounting break-even quantity? **b.** What is the cash break-even quantity? **c.** What is the financial break-even quantity?

**d.** What is the degree of operating leverage at the financial break-even level of output?

2. Consider the following cases: CaseUnit PriceUnit Variable

CostFixed CostsDepreciation1$ 4,000 $ 2,960 $ 15,000,000 $ 6,300,000 236 26.28 15,000 36,000 39 3.38 1,000 800 Ignore any tax effects in calculating the cash break-even. **1a.** Calculate the cash break-even point of Case 1.

**1b.** Calculate the accounting break-even point of Case 1.

**2a.** Calculate the cash break-even point of Case 2.

**2b.** Calculate the accounting break-even point of Case 2.

**3a.** Calculate the cash break-even point of Case 3.

**3b.** Calculate the accounting break-even point of Case 3.

3. A project that provides annual cash flows of $12,300 for 11 years costs $79,889 today. **a.** If the required return is 14 percent, what is the NPV for this project?

**b.** Determine the IRR for this project.

4. Bruin, Inc., has identified the following two mutually exclusive projects: YearCash Flow (A)Cash Flow (B)0–$36,200 –$36,200 118,700 6,300 214,200 12,800 311,700 19,300 48,700 23,300 **a.** What is the IRR for Project A?

**b.** What is the IRR for Project B?

**c.** If the required return is 10 percent, what is the NPV for Project A? **d.** If the required return is 10 percent, what is the NPV for Project B? **e.** At what discount rate would the company be indifferent between these two projects?

5. Consider the following two mutually exclusive projects: YearCash Flow (A)Cash Flow (B)0–$198,945 –$16,266 127,500 5,697 252,000 8,817 354,000 13,658 4394,000 8,382 Whichever project you choose, if any, you require a 6 percent return on your investment. **a.** What is the payback period for Project A?

**b.** What is the payback period for Project B?

**c.** What is the discounted payback period for Project A?

**d.** What is the discounted payback period for Project B?

**e.** What is the NPV for Project A?

**f.** What is the NPV for Project B ?

**g.** What is the IRR for Project A?

**h.** What is the IRR for Project B?

**i.** What is the profitability index for Project A?

**j.** What is the profitability index for Project B?