A project has the following estimated data: price = $66 per unit; variable costs

Question

A project has the following estimated data: price = $66 per unit; variable costs = $43 per unit; fixed costs = $16,500; required return = 8 percent; initial investment = $25,000; life = five years.

Ignoring the effect of taxes- (Round your answers to 2 decimal places. (e.g., 32.16))

What is the accounting break-even quantity?

What is the cash break-even quantity?

What is the financial break-even quantity?

What is the degree of perating leverage at the financial break-even level of output?(Round your answer to 3 decimal places. (e.g., 32.161))

Explanation / Answer

Accounting BEP = (16500 + 25000/5) / (66 - 43) = 935 units

Cash BEP = 16500 / (66 - 43) = 717 units

Financial BEP = (16500 + 25000/5) / .3485 = $ 61692.97

DOL = Contribution % / Operating margin %

Contribution % = (66 - 43) / 66 = 34.85%

DOL = 34.85% / 8%

= 4.356

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