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...

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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
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2.Calculate...

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accounting break-even quantity? (Do not round your intermediate
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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...

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Ignoring the effect of taxes, what is the accounting break-even
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your answer to 2 decimal places, e.g., 32.16.)
Break-even quantity
What is the cash
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Suppose that the sales units,...

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unit; variable costs = $46.4 per unit; fixed costs = $6,100;
required return = 12 percent; initial investment = $8,000; life =
three years. Ignore the effect of taxes.
Required:
(a)
What is the accounting
break-even quantity? (Do not round your intermediate
calculations.)
(Click to select)182 261 287 313
248
(b)
What is the cash break-even
quantity? (Do not round your intermediate
calculations.)
(Click to select)164 173...

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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this project.
a.
Calculate the accounting...

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