Blake’s Skiing Shop invested $400,000 to develop a new type of skateboard. The v

Question

Blake’s Skiing Shop invested $400,000 to develop a new type of skateboard. The variable costs were $65 per unit and fixed costs were $175,000. The boards are expected to sell for $100 each. The project’s cost of capital is 12.5%. This project is expected to take 4 years to become marketable. What is the project’s financial break-even point in units? As the boards go on the market, people love them and there has been a 35% increase in sales. What is the percent change in OCF after the first year of sales?

Explanation / Answer

Break-even point in units = fixed cost / conribution per unit

= 175000 / (100 - 65)

= 5000 units

That means till 5000 units there would be no profit and profits would start after 5000 units

Operating cashflow in the first year = 5000 x (100 -65) - 175000 = $0

Operating cashflow in the next year of sale = 5000 + 35% x (100 -65) - 175000 = $61250

Percent change in the first year of sales = 35%

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