A project has the following estimated data: price = $58 per unit; variable costs

Question

A project has the following estimated data: price = $58 per unit; variable costs = $36 per unit; fixed costs = $20,000; required return = 10 percent; initial investment = $30,000; life = six years. Ignoring the effect of taxes, what is the accounting break-even quantity? (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.) Break-even quantity 1136.36 What is the cash break-even quantity? (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.) Break-even quantity 909.09 What is the financial break-even quantity? (Do not round intermediate calculations. 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? (Do not round intermediate calculations. Round your answer to 3 decimal places, e.g., 32.161.) DOL I Have been asking people help for the last two it is not 1,273 and 1.4003

Explanation / Answer

Answer: Accounting break-even quantity:

Depreciation=30000/6=5000

QA=(Fixed cost+Dep)/(P-V)

=($20000+5000)/(58-36)

=1136.36 units

Cash break-even quantity:

QC=Fixed cost/(P-VC)

=$20000/(58-36)

=909.09 units

Financial break-even quantity:

QF=(Fixed cost+OCF)/(P-VC)

=($20000+ $6888.16)/(58-36)

=1222.19 units

The PV of the OCF must be equal to this value at the financial breakeven since the NPV is zero, so

$30000= OCF(PVIFA10%,6)

OCF = $6888.16

Degree of operating leverage=Contribution margin/Net operating income

=(58-36)*1222.19/6888.16

=26888.18/6888.16

=3.904

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.