Question

Problem 11-25 Break-Even and Taxes [LO3] Wettway Sailboat Corporation is considering whether to launch its new Margo-class sailboat. The selling price will be $53,000 per boat. The variable costs will be about half that, or $32,000 per boat, and fixed costs will be $585,000 per year. The total investment needed to undertake the project is $4,300,000. 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 14 percent on new projects. Use the above expression to find the cash, accounting, and financial break-even points for Wettway Sailboat. Assume a tax rate of 23 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 28.10 68.80 273.57

Answer 1

(Fixed costs+Depreciation) 1 aAccounting break-even point Contribution per unit 68.81 -(4300000/5+585000)/(53000-32000) 2 b Cash break-even quantity Fixed costs/Contribution per unit27.86 -585000/(53000-32000) (Fixed costs+OCF)/Contribution per 93.08-4PMT(14% 5,4300 000 (4300000 5,-23% 3 Financial break-even quantity unit (1-23%)+58500 (530003200)