A project has the following estimated data: price = $56 per unit; variable costs

Question

A project has the following estimated data: price = $56 per unit; variable costs = $35 per unit; fixed costs = $18,500; required return = 8 percent; initial investment = $45,000; life = five years.

1-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

2-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

3-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

4-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.)

Explanation / Answer

Accounting Break even Qty Per Year Ans 1 Sales Price 56 VC 35 Contribution 21 Annual Fixed cost      92,500.00 Annual Depreciation        9,000.00 Total Fixed cost to be recovered 1,01,500.00 Accounting Break even Qty=Total FC/Contribution per Unit        4,833.33 Ans 2 Cash Break even Qty Per Year Sales Price 56 VC 35 Contribution 21 Annual Fixed cost      92,500.00 Total Cash Fixed cost to be recovered      92,500.00 Cash Break even Qty=Total Cash FC/Contribution per Unit        4,404.76 Ans 3 Financial Break even Qty Sales Price 56 VC 35 Contribution 21 Annual Fixed cost      92,500.00 No of Year 5 PVAF            3.9927 Present value of total Fixed cost 3,69,325.68 Initial Invesment      45,000.00 Total Cash outflow 4,14,325.68 Financial Break even qty      19,729.79

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