Question

In: Finance

A project has the following estimated data: price = $79 per unit; variable costs = $41.87...

A project has the following estimated data: price = $79 per unit; variable costs = $41.87 per unit; fixed costs = $6,900; required return = 9 percent; initial investment = $10,000; life = six years. Ignore the effect of taxes.

  

a. What is the accounting break-even quantity?

  

b. What is the cash break-even quantity?

  

c. What is the financial break-even quantity?

  

d. What is the degree of operating leverage at the financial break-even level of output?

Solutions

Expert Solution

  1. Accounting BEP:
    • (SP-VC) x BEP units = Fixed Cost
    • (79-41.87) x BEP units = 6900
    • BEP Units = 185.8335578
    • As there cant be partial units, we should assume it to be 186 units, the next highest integer
  2. Cash BEP:
    • We reduce the Fixed cost by depreciation as it is a non cash expense
    • (SP-VC) x BEP units = Fixed Cost - Depreciation
    • Depreciation = initial investment/life
    • Depreciation = 10000/6 = 1666.666667
    • (79-41.87) x BEP units = 6900 - 1666.666667
    • BEP Units = 140.946225
    • As there cant be partial units, we should assume it to be 141 units, the next highest integer
  3. FInancial BEP is when the NPV = 0
    • Depreciation is added back as it is a non cash expense
      • Year 0 1 2 3 4 5 6
        Units Calculated 200.983872 200.983872 200.983872 200.983872 200.983872 200.983872
        SP Given 79 79 79 79 79 79
        Sale SP x BEP units 15877.72589 15877.72589 15877.72589 15877.72589 15877.72589 15877.72589
        VC per unit Given 41.87 41.87 41.87 41.87 41.87 41.87
        Total VC VC per unit x BEP units 8415.194719 8415.194719 8415.194719 8415.194719 8415.194719 8415.194719
        Fixed cost Given 6900 6900 6900 6900 6900 6900
        Depreciation Calculated above 1666.666667 1666.666667 1666.666667 1666.666667 1666.666667 1666.666667
        EAT Sale-VC-FC+Depreciation 2229.197833 2229.197833 2229.197833 2229.197833 2229.197833 2229.197833
        FCINV Given -10000
        FCF -10000 2229.197833 2229.197833 2229.197833 2229.197833 2229.197833 2229.197833
        Discount rate factor 1/1.09^0 1/1.09^1 1/1.09^2 1/1.09^3 1/1.09^4 1/1.09^5 1/1.09^6
        Discount factor 1 0.917431193 0.841679993 0.77218348 0.708425211 0.649931386 0.596267327
        DCF FCF x Discount factor -10000 2045.135627 1876.271217 1721.34974 1579.219945 1448.825638 1329.197833
        NPV Sum of all DCF 0
    • BEP Units = 200.983872
    • As there cant be partial units, we should assume it to be 201 units, the next highest integer


jeff jeffy answered 10 months ago
Next > < Previous

Related Solutions

A project has the following estimated data: price = $72 per unit; variable costs = $27.36...
A project has the following estimated data: price = $72 per unit; variable costs = $27.36 per unit; fixed costs = $8,000; required return = 14 percent; initial investment = $7,000; life = six years. Ignore the effect of taxes. a. What is the accounting break-even quantity? b. What is the cash break-even quantity? c. What is the financial break-even quantity? d. What is the degree of operating leverage at the financial break-even level of output?
A project has the following estimated data: price = $80 per unit; variable costs = $28.80...
A project has the following estimated data: price = $80 per unit; variable costs = $28.80 per unit; fixed costs = $5,500; required return = 10 percent; initial investment = $8,000; life = seven years. Ignore the effect of taxes. a. What is the accounting break-even quantity? b. What is the cash break-even quantity? c. What is the financial break-even quantity? d. What is the degree of operating leverage at the financial break-even level of output?
A project has the following estimated data: price = $75 per unit; variable costs = $29.25...
A project has the following estimated data: price = $75 per unit; variable costs = $29.25 per unit; fixed costs = $5,200; required return = 9 percent; initial investment = $9,000; life = seven years. Ignore the effect of taxes. a. What is the accounting break-even quantity? 142 114 170 156 135 b. What is the cash break-even quantity? 114 142 108 91 103 c. What is the financial break-even quantity? 153 184 168 138 122 d. What is the...
A project has the following estimated data: price = $54 per unit; variable costs = $28.08...
A project has the following estimated data: price = $54 per unit; variable costs = $28.08 per unit; fixed costs = $6,600; required return = 11 percent; initial investment = $10,000; life = three years. Ignore the effect of taxes.    a. What is the accounting break-even quantity?    b. What is the cash break-even quantity?    c. What is the financial break-even quantity?    d. What is the degree of operating leverage at the financial break-even level of output?
A project has the following estimated data: price = $66 per unit; variable costs = $43...
A project has the following estimated data: price = $66 per unit; variable costs = $43 per unit; fixed costs = $16,500; required return = 8 percent; initial investment = $25,000; 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-even quantity? (Round your answer to 2 decimal places. (e.g., 32.16)) Break-even quantity What is the financial break-even quantity?...
A project has the following estimated data: Price=$62 per unit; variable costs =$28 per unit; fixed...
A project has the following estimated data: Price=$62 per unit; variable costs =$28 per unit; fixed costs=$27,300; required return= 12 percent; initial investment= $34,800; life= four years. Ignoring the effect of taxes, what is the accounting break-even quantity? The cash break-even quantity? The financial break-even quantity? What is the degree of operating leverage at the financial break-even level of output?
A project has a projected sales price of $99 a unit, variable costs per unit of...
A project has a projected sales price of $99 a unit, variable costs per unit of $58, annual fixed costs of $238,000, and annual depreciation of $139,000. The tax rate is 22 percent. What is the contribution margin for an analysis using sales units of 12,800? Multiple Choice $27.06 $38.97 $22.41 $41.00 $42.64
Sells price per unit=$200 variable manufacturing costs per unit= $50 variable S&A costs per unit= $10...
Sells price per unit=$200 variable manufacturing costs per unit= $50 variable S&A costs per unit= $10 Fixed MOH= $50,000 Fixed S&A costs=$10,000 Units produced=5000 Units sold= 4000 Produce a full absorption income statement, what is the operating income produce a variable costing income statement, what is the operating income if units produced exceeds untis sold, does full absorption accounting or varible cost account result in a higher operating income
Given the following information: Selling Price (per unit): $10,000 Variable Costs (per unit): $7,000 Fixed Costs:...
Given the following information: Selling Price (per unit): $10,000 Variable Costs (per unit): $7,000 Fixed Costs: $200,000 Required Each of these are separate situations: What is the break-even point in total sales in dollars? How many units need to be sold to make a profit of $20,000? How many units need to be sold to make a profit of $20,000 if fixed costs increase from $200,000 to $250,000? How many units would they need to sell if they wanted to...
Given the following information: Selling Price (per unit): $10,000 Variable Costs (per unit): $7,000 Fixed Costs:...
Given the following information: Selling Price (per unit): $10,000 Variable Costs (per unit): $7,000 Fixed Costs: $200,000 Required Each of these are separate situations: What is the break-even point in total sales in dollars? How many units need to be sold to make a profit of $20,000? How many units need to be sold to make a profit of $20,000 if fixed costs increase from $200,000 to $250,000? How many units would they need to sell if they wanted to...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT