A project has the following estimated data: price = $59 per unit; variable costs

Question

A project has the following estimated data: price = $59 per unit; variable costs = $31.27 per unit; fixed costs = $5,200; required return = 12 percent; initial investment = $8,000; life = three years. Ignore the effect of taxes.

(Do not round your intermediate calculations.)

(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?

Explanation / Answer

depreciation(D)= (cost- salvage value)/life =8,000-0/3=2,666.67

a) accounting BEQ=(FC + D) / (P - VC) = (5,200+2,666.67)/(59-31.27) =283.69

b) cash BEQ = FC / (P - VC) =5,200/(59-31.27)= 187.52

c) financial BEQ = [OCF ? Depr

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