Wettway Sailboat Corporation is considering whether to launch its new Margo-clas

Question

Wettway Sailboat Corporation is considering whether to launch its new Margo-class sailboat. The selling price will be $48,000 per boat. The variable costs will be $33,000 per boat, and fixed costs will be $900,000 per year.

The Base Case: The total investment needed to undertake the project is $3,400,000. This amount will be depreciated straight-line to zero over the five-year life of the equipment. The salvage value is zero, and there are no working capital consequences. Wettway has a 12 percent required return on new projects.

Use the above expression to find cash, accounting and financial break-even points for Wettway Sailboat. Assume tax rate of 38 percent. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

Wettway Sailboat Corporation is considering whether to launch its new Margo-class sailboat. The selling price will be $48,000 per boat. The variable costs will be $33,000 per boat, and fixed costs will be $900,000 per year.

The Base Case: The total investment needed to undertake the project is $3,400,000. This amount will be depreciated straight-line to zero over the five-year life of the equipment. The salvage value is zero, and there are no working capital consequences. Wettway has a 12 percent required return on new projects.

Explanation / Answer

Answer:

(Assumption : Assuming Fixed cost given does not include depreciation )

Calculation of Cash Break Even Point :

Cash Breakeven Point (Units) = Fixed expenses (Cash)   / (Selling Price

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