Question

Wettway Sailboat Corporation is considering whether to launch its new Margo-class sailboat. The selling price will be $57,000 per boat. The variable costs will be about half that, or $36,000 per boat, and fixed costs will be $625,000 per year. The total investment needed to undertake the project is $4,700,000. This amount will be depreciated straight-line to zero over the 6-year life of the equipment. The salvage value is zero, and there are no working capital consequences. Wettway has a required return of 18 percent on new projects. Q =FC +OCF−TC×D1−TCP−v Q = FC + OCF − T C ×   D 1 − T C P − v Use the above expression to find the cash, accounting, and financial break-even points for Wettway Sailboat. Assume a tax rate of 22 percent. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

Cash break-even Accounting break-even Financial break-even

Answer 1

B C Sales less Variable Cost Contribution 57000 36000 21000 Fixed Cost Depreciation 625000 783333.3 18% Required rate Project life in years tax rate Cost of project 22% -4700000 13 14 15 a) 16 Cash break-even 67.06 17 18 b) Accounting break-even 29.76 19 20 21 c) Financial break-even 83.23

The formula sheet is attached below. cown Sales less Variable Cost Contribution 57000 36000 =+C3-C4 Fixed Cost Depreciation 625000 =4700000/6 0.18 Required rate Project life in years tax rate Cost of project 0.22 -4700000 Cash break-even =(C7+C8)/C5 Accounting break-even =C7/05 Financial break-even (PMT(C10, C11, C13,0)-(C8*C12/(1-C12)+C7)/C5

Answer 2

This is wrong answer