The mutually exclusive project with the highest positive NPV will ...

[student77]

The mutually exclusive project with the highest positive NPV will also have the highest IRR.
 
  Indicate whether the statement is true or false

Question 2

The following information pertains to the Classic Burger Restaurant chain:
 
  Sales 600,000
  Variable costs 300,000
  Total contribution margin 300,000
  Fixed costs 100,000
  EBIT 200,000
  Interest expense 50,000
  Earnings before taxes 150,000
  Taxes (30) 45,000
  Net income 105,000
  a. If sales increase by 10, what will be the new level of EPS if the firm has 100,000 shares outstanding?
  b. What is the percentage increase in EPS? Explain the difference between the percentage increase in sales and
  the percentage increase in EPS.

[izzat]

Answer to Question 1

FALSE

Answer to Question 2

a.
Sales 600,000  1.1 = 660,000
Variable costs 300,000  1.1 = 330,000
Total contribution margin 300,000 330,000
Fixed costs 100,000 100,000
EBIT 200,000 230,000
Interest expense 50,000 50,000
Earnings before taxes 150,000 180,000
Taxes (30) 45,000 54,000
Net income 105,000 126,000
Earnings Per Share 10.50 12.60
b. (12.60 - 10.50)/10.50 = .20 or 20; A 10 increase in sales results in a 20 increase in EPS due to leverage.
Classic Burger uses both operating leverage (fixed cost of operations) and financial leverage (debt financing reflected in
interest expense).