All i need is A-2 value: .00 points Problem 11-5 Sensitivity Analysis and Break-

Question

All i need is A-2

value: .00 points Problem 11-5 Sensitivity Analysis and Break-Even [L01, 3] We are evaluating a project that costs $680,000, has a five-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 64,000 units per year. Price per unit is $46, variable cost per unit is $26, and fixed costs are $685,000 per year. The tax rate is 35 percent, and we require a return of 20 percent on this project. a-1 Calculate the accounting break-even point. (Do not round intermediate calculations. Round your answer to the nearest whole number, e.g., 32.) Break-even point 41050 units a-2 What is the degree of operating leverage at the accounting break-even point? (Do not round intermediate calculations. Round your answer to 3 decimal places, e.g., 32.161.) DOL

Explanation / Answer

At accouting breakeven point, Degree of Operating Leverage = 1 + Fixed Cost / Depreciation

DOL = 1 + 685,000 / 136,000 = 6.037

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