Question

8. Consider the following production-oriented project. The units produced will sell for $28/unit and can be produced at a variable cost of $20/unit. Fixed costs are $80K. The purchase price for the project is $200K, de preciable down to zero over a four-year life. The project has no salvage value. Ignore taxes, but use a 10% re- quired return when evaluating this project. (a) Calculate the accounting break-even quantity. (b) Calculate the cash-flow break-even quantity. (c) Calculate the financial break-even quantity,

Answer 1

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- 2x Σ AutoSum : A GOLF, BEST WORST, PBP, IRR, NAUTICAL CREATIONS - Microsoft Excel (Product Activation Failed) File Home Insert Page Layout Formulas Data Review View Add-Ins % Cut Calibri -11AA = = = Dr Wrap Text General Ea Copy Paste BI U DA * SF *Merge & Center - Merge Center $ % % 4:0 .00 88 Format Painter Conditional Format Cell Insert Delete Format Formatting as Table Styles Clipboard Font Alignment Number Styles Cells H9 A B J K Fill Clear Sort & Filter Editing Find & Select L 28 20 00 vu wn sp selling price VC variable cost fixed cost depreciation 200000/4 = 80000 50000 accounting break even level Quantity = (fixed cost + depreciation)/(sp-vc) Quantity = (80000 + 50000)/(28-20) Quantity = 16250 9 10 11 12 13 cash flow break even level Quantity = (fixed cost)/(sp-vc) Quantity = (80000)/(28-20) Quantity = 10000 14 15 16 17 18 19 HON Red financial breakeven point FINANCIAL BREAKEVEN QUANTITY: IT IS THE POINT WHERE NPV IS ZERO NPV NEW MACHINE yen dollar hege Sheet10 BEST WORST PRICEQUANTITY Sheet3 Sheet4 ferences 0 [ ..ERO 9 20130% 0 + * 10 ENG 06-12-2019

GOLF, BEST WORST, PBP, IRR, NAUTICAL CREATIONS - Microsoft Excel (Product Activation Failed) Data Review View Add-Ins File Home Insert Page Layout Formulas - 2x % Cut Σ AutoSum : A .0 .00 Insert Delete Format Conditional Format Formatting as Table Styles Cell Styles Fill Clear Sort & Filter Editing Find & Select Cells H JK 22 Calibri -11AA = = = Dr Wrap Text General E Copy Paste E BI U DA = 5 st Fat Merge Center $ % , Format Painter Clipboard Font Alignment Number H35 Α в с financial breakeven point 19 FINANCIAL BREAKEVEN QUANTITY: IT IS THE POINT WHERE NPV IS ZERO 20 OCF =( (sp-vc)(units) - fixed cost)(1-t) +t(depreciation) 21 OCF =((28-20)(X) - 80000)(1-0.00) + (0.00)*(50000) OCF = 8(X) - 80000 23 24 25 NPV = Present value of all OCFS - Investment (8() - 80000 ) x PVIFA @ 10%, 4 YEARS - 200000 0= (8(X) - 80000 ) x 3.169865 - 200000 28 0 = 25.358924(X) - 453589.24 29 X= 17886.77 30 FINANCIAL BREAKEVEN QUANTITY = 17887 31 [ROUNDED] 32 33 34 35 36 N NPV NEW MACHINE yen dollar hege Sheet10 BEST WORST PRICEQUANTITY Sheet3 Sheet4 Red ferences 26 27 NOTE PVIFA @10%, 4 YEARS (1/r)*(1-(1/(1+r)^n) (1/0.1)*(1-(1/(1+0.1)^4) = 3.169865 K 0 ..ERO 9 * 10 ENG 06-12-2019