HW 11- question 2 A project has the following estimated data: price = $66 per un

Question

HW 11- question 2

A project has the following estimated data: price = $66 per unit; variable costs = $43 per unit; fixed costs = $16,500; required return = 8 percent; initial investment = $25,000; life = five years. Ignoring the effect of taxes, the accounting break-even quantity is $935. Cash break-even quantity is $717.

What is the financial break-even quantity? (Round your answer to 2 decimal places. (e.g., 32.16))

What is the degree of operating leverage at the financial break-even level of output? (Round your answer to 3 decimal places. (e.g., 32.161))

Explanation / Answer

What is the financial break-even quantity? (Round your answer to 2 decimal places. (e.g., 32.16))

Financial break-even quantity = Fixed cost /(Price - Cost)

Financial break-even quantity = 16500/(66-43)

Financial break-even quantity = 717.39 Units

What is the degree of operating leverage at the financial break-even level of output? (Round your answer to 3 decimal places. (e.g., 32.161))

Degree of operating leverage at the financial break-even level of output = Contribution Margin/(EBIT)

Degree of operating leverage at the financial break-even level of output = (66-43)*717.39/ ((66-43)*717.39-16500)

Degree of operating leverage at the financial break-even level of output = infinite

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