16 10.0 points value: A project has the following estimated data: price $79 per

Question

16 10.0 points value: A project has the following estimated data: price $79 per unit; variable costs $45.82 per unit; fixed costs = $5,600; required return = 16 percent; initial investment-S 11,000, life-three years. gnore the effect of Required (a) What is the accounting break-even quantity? (Do not round your intermediate calculations.) Click to select) (b)What is the cash break-even quantity? (Do not round your intermediate calculations.) (Click to select) (c) What is the financial break-even quantity? (Do not round your intermediate calculations.) (Click to select) (d) What is the degree of operating leverage at the financial break-even level of output? (Do not round your intermediate calculations.) (Click to select)

Explanation / Answer

1 Accounting BEP=F.C/ (S.P/UNIT-V.C/UNIT)

                   =5600/ (79-45.82)

                 =168.78 UNIT

2 CASH BEP=FIXED COST-NON CASH EXPENSES/ (S.P/UNIT-V.C/UNIT)

NON CASH EXPENSES HERE IS DEPERCIATION

DEPRECIATION=COST OF ASSET/NO. OF YEARS

=11000/3

=3666.67

CASH BEP=5600-3666.67//(79-45.82)

                       =1933.33/33.18

                          =58.268 UNIT

3 FINANCIAL BEP=FIXED COST+ANNUAL OPERATING CASH FLOW// (S.P/UNIT-V.C/UNIT)

Operating Cash Flows = Net income + Noncash Expenses (Usually Depreciation Expense) + Changes in Working Capital

OPERATING CASH FLOW

=13333.33-(45.82×168.78)+(3666.67)

=1933.1604

FINANCIAL BEP=5600+1933.1604/33.18

=227.1604

4DEGREE OF OPERATING LEVERAGE AT FINACIAL BEP LEVEL

=SALES-VARIABLE COST/SALES-V.C-F.C

=17945.67-10408.49/(17945.67-10408.49-5600)

=7537.18/1937.18

=3.8

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