Question

Can you answer/correct the cash break-even and financial break even portion please.

Wettway Sailboat Corporation is considering whether to launch its new Margo-class sailboat. The selling price will be $50,000 per boat. The variable costs will be about half that, or $29,000 per boat, and fixed costs will be $555,000 per year. The total investment needed to undertake the project is $4,000,000. This amount will be depreciated straight-line to zero over the 5-year life of the equipment. The salvage value is zero, and there are no working capital consequences. Wettway has a required return of 11 percent on new projects. ОCF-TCX D FC +TIC Q Р-v Use the above expression to find the cash, accounting, and financial break-even points for Wettway Sailboat. Assume a tax rate of 25 percent. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) (X Answer is complete but not entirely correct. 26.43X Cash break-even 64.52 Accounting break-even 1,082,281.00X Financial break-even

Answer 1

Cash break-even	26.43
Accounting break-even	64.52
Financial break-even	82.45

Cash break-even = $ 555,000 / $ 21,000 = 26.43

Accounting break-even = $ ( 555,000 + 800,000 ) / $ 21,000 = 64.52 units

At financial break-even, NPV = 0

Let the break-even quantity be Q.

Operating cash flows after taxes = EBITDA * ( 1 - t ) + Depreciation * t = [ (21,000 Q - 555,000) * 0.75 + 800,000 * 0.25 ] = 15,750 Q - 216,250

PVA _{11%, n = 5} = { { 1 - ( 1 / 1.11 ) ⁵ } / 0.11 ] = 3.6959

At financial break-even, 3.6959 * ( 15,750 Q - 216,250 ) = 4,000,000

Q = 82.45