Question

The Quorum Company has a prospective 5-year project that requires initial fixed asset costing $2.600.000, annual fixed costs of $515,000, variable costs per unit of $18,000, a sales price per unit of $44,000, a discount rate of 20 percent, and a tax rate of 21 percent. What is the financial break-even point?

Answer 1

The financial break-even point for Quorum Company is when they sell at least 20 units. This calculation is based on their fixed and variable costs, and the sales price per unit, without considering the discount rate or tax rate.

Step-by-step explanation:

The financial break-even point is the level of output at which total revenue equals total costs, including both variable and fixed costs, where the company does not make a profit but also does not incur any losses. To determine this point for Quorum Company, we need to calculate the level of units that need to be sold to cover all costs, using the provided data about the price per unit, variable costs per unit, fixed costs, and other financial information. This does not take into account the discount rate or tax rate, as these do not affect the calculation of the financial break-even point.

Using the formula:
Break-even units = Fixed Costs / (Sales Price per Unit - Variable Cost per Unit),
we can calculate the financial break-even point as follows:
Break-even units = $515,000 / ($44,000 - $18,000) = $515,000 / $26,000 = 19.807 units. Since we cannot have a fraction of a unit, the company would need to sell at least 20 units to reach its financial break-even point.

Answer 2

To calculate the total revenue, marginal revenue, total cost, and marginal cost for each output level, we can use the given information. The profit-maximizing quantity of output is three units.

Step-by-step explanation:

To calculate the total revenue, marginal revenue, total cost, and marginal cost for each output level, we can use the given information.

1. For one unit, the total revenue is $20, the marginal revenue is $20, the total cost is $40, and the marginal cost is $20.
2. For two units, the total revenue is $40, the marginal revenue is $20, the total cost is $45, and the marginal cost is $5.
3. For three units, the total revenue is $60, the marginal revenue is $20, the total cost is $70, and the marginal cost is $15.
4. For four units, the total revenue is $80, the marginal revenue is $20, the total cost is $120, and the marginal cost is $50.
5. For five units, the total revenue is $100, the marginal revenue is $20, the total cost is $200, and the marginal cost is $80.

The profit-maximizing quantity of output is the unit where marginal revenue equals marginal cost, which in this case is three units.

On one diagram, sketch the total revenue and total cost curves, and on another diagram, sketch the marginal revenue and marginal cost curves.