Consider a project with the following data: accounting break-even quantity = 5,5
ID: 2649093 • Letter: C
Question
Consider a project with the following data: accounting break-even quantity = 5,500 units; cash break-even quantity = 5,000 units; life = six years; fixed costs = $170,000; variable costs = $26 per unit; required return = 8 percent. Ignoring the effect of taxes, find the financial break-even quantity. (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))
Consider a project with the following data: accounting break-even quantity = 5,500 units; cash break-even quantity = 5,000 units; life = six years; fixed costs = $170,000; variable costs = $26 per unit; required return = 8 percent. Ignoring the effect of taxes, find the financial break-even quantity. (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))
Explanation / Answer
Selling Price Per unit = fixed costs/Accounting break-even quantity + variable costs
Selling Price Per unit = 170000/5500 + 26
Selling Price Per unit = $ 56.9090
Depreciation = (56.9090-26)*(5500-5000)
Depreciation = $ 15454.55
Initial investment = 15454.55*6 = $ 92,727.27
Annual Cash flow = Initial investment /PVIFA(8%,6)
Annual Cash flow = 92727.27/4.622880
Annual Cash flow = $ 20058.34
Financial Break Even Point = (20058.34+170000-15454.55)/(60-26)
Financial Break Even Point = 5648.95 Units
Answer
Break-even quantity = 5648.95