Question

1. Briefly describe the concepts of ROI, Payback Period, and Breakeven Analysis

2. Company XYZ is looking to launch a new product next year, Product A will cost $50,000 to launch, and will bring in a profit of $100,000, Product B will cost $500,000 to launch and bring in a profit of $900,000. What is the ROI of each product and which should the company launch?

3. Project A which yields the following cash flows over its five year life. What is the Payback?

Year	Cash Flow	Net Cash Flow
0	-1,000	-1,000
1	500	-500
2	400	-100
3	200	100
4	200	300
5	100	400

4. A firm produces and sells a product with these values:

F = Total Fixed costs = $1,200 V = Variable cost per unit = $15P = Selling price per unit = $40

What is the breakeven point in Units? How many Units does it need to sell in order to make $1,300?

Answer 1

Parrt-2:

Particulars	Product-A	Prodcut-B
Cost	50,000	5,00,000
Profit	1,00,000	9,00,000
ROI (Profit/Cost)*100	200%	180%

Based on ROI, XYZ should launch Product-A

.

Part-3:

Year	Cash Flows	Cummulative Cash Flows
0	-1000	-1000
1	500	-500
2	400	-100
3	200	100	(2+100/200)
4	200	300
5	100	400

.

Payback of Project-A = 2 + (100/200)

= 2.5 years

.

Part-4:

Particulars	Amount ($)
Seeling Price p.u.	40
Less: Variable Cost p.u.	15
Contribution p.u.	25
Fixed Cost	1,200
Break Even Point	48
(1200/25)

Units to sell in order to make $1,300 profit = (Profit + Fixed Cost)/Contribution p.u

= (1300+1200)/25

= 2500/25

= 100 units