Question

project requires an initial fixed asset investment of $148,000, has annual fixed costs of $39,800, a contribution margin of $14.62, a tax rate of 21 percent, a discount rate of 15 percent, and straight-line depreciation over the project's 3-year life. The assets will be worthless at the end of the project. What is the present value break-even point in units per year?

Answer 1

The break-even point in units per year is approximately 2,720.11 units.

Step-by-step explanation:

The present value break-even point in units per year can be calculated by dividing the fixed costs by the contribution margin. In this case, the fixed costs are $39,800 and the contribution margin is $14.62. Therefore, the break-even point in units per year is:

Break-even point = Fixed costs / Contribution margin

= $39,800 / $14.62

≈ 2,720.11 units per year

Answer 2

18,119 units

Step-by-step explanation:

Break even Point is the level of activity at which the the project makes neither a profit nor loss.

Break even Point = (Annual fixed costs of a project + Annual equivalent cost of the project) ÷ Contribution per unit

where,

Annual fixed costs of a project = $39,800

Step 1 : Calculate PMT

This is to account for additional fixed costs on initial investment that needs to be covered.

N = 3

I = 15 %

PV = $148,000

FV = $0

PMT = ?

Using a Financial calculator, the PMT is $225,090

Step 2: Calculate Break Even Point

Break even Point = ($39,800 + $225,090) ÷ $14.62

= 18,119 units

Conclusion

The present value break-even point in units per year is 18,119 units