PLEASE ROUND ANSWERS TO 2 DECIMAL PLACE OR 3!DEPENDING ON INSTRUCTIONS! THANK YO

Question

PLEASE ROUND ANSWERS TO 2 DECIMAL PLACE OR 3!DEPENDING ON INSTRUCTIONS! THANK YOU IN ADVANCE

A project has the following estimated data: price = $50 per unit; variable costs = $32 per unit; fixed costs = $14,000; required return = 10 percent; initial investment = $20,000; life = four years. Ignoring the effect of taxes, what is the accounting break-even quantity? (Round your answer to 2 decimal places. (e.g., 32.16)) Break-even quantity What is the cash break-even quantity? (Round your answer to 2 decimal places. (e.g., 32.16)) Break-even quantity What is the financial break-even quantity? (Round your answer to 2 decimal places. (e.g., 32.16)) Break-even quantity 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)) DOL?

Explanation / Answer

1) accounting break even qty = ( fixed cost + depreciation)/(selling price- variable price)

= (14000 + 20000/4)/(50 - 32) = 1055.56

2)

cash break even qty = fixed cost/(selling price- variable price)

= 14000/(50 - 32) = 777.78

3)

4)

Degree of operating leverage =

( sales variable costs)/(sales variable costs fixed costs)

= (20309.42 )/(20309.42 - 14000) = 3.219

Time line 0 1 2 3 4 Cost of equipment -20000 Installation cost 0 Total investment in new machine -20000 Net working capital 0 =Initial Investment outlay -20000 Financial breakeven qty= 1128.300893 Profit= Qty*(selling price - variable cost) 20309.42 20309.42 20309.42 20309.42 -fixed cost Cost of equipment/4 -14000 -14000 -14000 -14000 = 6309.416 6309.416 6309.416 6309.416 =after tax operating cash flow 20309.42 18416.59 18416.59 18416.59 Reversal of Net working capital 0 Proceeds from sale of assets =selling price*(1 - tax rate) 0 +Salvage book value * tax rate 0 Terminal year non operating cash flows 0 Total Cash flow for the period -20000 6309.416 6309.416 6309.416 6309.416 Discount factor =(1+discount rate)^n 1 1.1 1.21 1.331 1.4641 Discount rate= 10% Discounted cash flows -20000 5735.833 5214.393 4740.358 4309.416 NPV= Sum of discounted cash flows 0

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