Question

XYZ Co. is evaluating whether to invest in a project with the following information:

Project cost = $950,000

Project life = five years

Projected number of units sold per year = 10,000

Projected price per unit = $200

Projected variable cost per unit = 150

Fixed costs per year = $150,000

Required rate of return = 15%

Marginal tax rate = 35%

Assume straight-line depreciation to zero over five years, and ignore the half-year rule for accounting for depreciation.

- Calculate the cash break-even sales quantity for this project.
- Calculate the accounting break-even sales quantity for this project.
- Calculate the financial break-even sales quantity for this project.
- Calculate the Degree of Operating Leverage (DOL) at the cash break-even, accounting break-even, and financial break-even sales quantities.

Answer #1

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Tank Co. is evaluating a project that costs $100,000 and has a
5-year life.
Assume that depreciation is prime-cost to zero salvage value
over the 5-years, and the equipment can be sold for $6,000 at the
end of year 5. The average discount rate for such a project is 10
per cent on such projects. The individual tax rate is 15 per cent
and
corporate tax rate is 30 per cent.
It is projected that they will sell 12000 units...

Given the following project
information, calculate the after-tax operating cash flow (ATOCF)
using the four approaches of calculating operating cash flow.
Project cost = $950,000
Project life = five years
Projected number of units sold per
year = 10,000
Projected price per unit = $200
Projected variable cost per unit =
150
Fixed costs per year = $150,000
Required rate of return = 15%
Marginal tax rate = 35%
Depreciation = Straight-line to zero
over five years (ignore...

You are evaluating a project that costs $650,000, has a five
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straight line to zero over the life of the project. Sales are
projected at 60,000 units per year. Price per unit is $46, variable
cost per unit is $28, and fixed costs are $720,000 per year. The
tax rate is 25 percent, and you require a 11 percent return on this
project.
1.Calculate the accounting break-even point.
2.Calculate...

A project has the following estimated data: price = $90 per
unit; variable costs = $36.9 per unit; fixed costs = $7,700;
required return = 15 percent; initial investment = $10,000; life =
five years. Ignore the effect of taxes. Required: (a) What is the
accounting break-even quantity? (Do not round your intermediate
calculations.) (b) What is the cash break-even quantity? (Do not
round your intermediate calculations.) (c) What is the financial
break-even quantity? (Do not round your intermediate calculations.)...

We are evaluating a project that costs $844,200, has a nine-year
life, and has no salvage value. Assume that depreciation is
straight-line to zero over the life of the project. Sales are
projected at 80,000 units per year. Price per unit is $54, variable
cost per unit is $38, and fixed costs are $760,000 per year. The
tax rate is 23 percent, and we require a return of 10 percent on
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a-1.
Calculate the accounting break-even point....

A project has the following estimated data: price = $52 per
unit; variable costs = $33 per unit; fixed costs = $15,500;
required return = 12 percent; initial investment = $32,000; life =
four years.
Ignoring the effect of taxes, what is the accounting break-even
quantity? (Do not round intermediate calculations. Round
your answer to 2 decimal places, e.g., 32.16.)
Break-even quantity
What is the cash
break-even quantity? (Do not round intermediate
calculations. Round your answer to 2...

Consider a project with the following data: accounting
break-even quantity = 30,229 units; cash break-even quantity =
17,933 units; life = 9 years; fixed costs = $205,385; variable
costs = $21 per unit; required return = 12 percent; depreciation =
straight line. Ignoring the effect of taxes, what is the financial
break-even quantity?

Use the following information and the break even formulas to
determine fixed costs, depreciation and operating cash flow.
Accounting Break even
quantity 13,000
units
Cash Break even
quantity 7,000
units
Financial Break even
quantity 18,000
units
Unit
Price 60.00
Variable cost per
unit 46.00
Fixed costs _____________________
Depreciation ____________________
Operating Cash Flow _____________

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straight-line to zero over the life of the project. Sales are
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a. Calculate the accounting break-even point.
(Do...

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10 years, and has no salvage value. Assume that depreciation is
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tax rate is 23 percent and we require a return of 12 percent on
this project.
a.
Calculate the accounting...

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