i need help! A project has the following estimated data price = $68 per unit; va

ID: 2707753 • Letter: I

Question

i need help!

A project has the following estimated data price = $68 per unit; variable costs = $44 per unit; fixed costs = $18,000; required return = 10 percent; initial investment = $40,000; life = five years. Ignoring the effect of taxes, what is the accounting break-even quantity? (Round your answer to 2 decimal places, (e.g., 32.16)) Break-even quantity What is the cash break-ever quantity? (Round your answer to 2 decimal places, (e.g., 32.16)) Break-even quantity What is the financial break-even quantity? (Round your answer to 2 decimal places, (e.g., 32.16)) Break-even quantity What is the degree of operating leverage at the financial break-even level of output? (Round your answer to 3 decimal places, (e.g., 32.161)) DOL

Explanation / Answer

INITIAL INVESTMENT = 40000

DEPRECIATION = 40000/4 = 10000 PER YEAR

REQUIRED RETURN = 10% ON 40000 = 4000

FIXED COST = 18000

CONTRIBUTION P.U. = 68-44 = 24

ACCOUNTING BREAK-EVEN = (FIXED COST + DEPRECIATION)/CONTRIBUTION P.U.

=(18000+10000)/24

=1166.67 UNITS

CASH BREAK EVEN QUANTITY = (FIXED COST + INITIAL INVESTMENT)/ CONTRIBUTION P.U.

=(18000+40000)/24

=2416.67 UNITS

FINANCIAL BREAK EVEN QUANTITY = (FIXED COST + REQUIRED RETURN)/ CONTRIBUTION P.U.

=(18000+4000)/24

=916.67 UNITS

DEGREE OF OPERATING LEVERAGE AT AT THE FINANCIAL BREAK EVEN LEVEL OF OUTPUT

= CONTRIBUTION / EBIT

= CONTRIBUTION = 24*916.67 = 22000

= EBIT = CONTRIBUTION