Question

You are considering a new product launch. The project will cost $1,950,000, have a four-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 180 units per year; price per unit will be $24,000, variable cost per unit will be $15,000, and fixed costs will be $540,000 per year. The required return on the project is 10 percent, and the relevant tax rate is 34 percent.

1. What is the cash break-even level of output for this project (ignoring taxes)? (Round your answer to 2 decimal places. (e.g., 32.16))
Cash break-even
2. What is the accounting break-even level of output for this project? (Round your answer to 2 decimal places. (e.g., 32.16))
Accounting break-even

Answer 1

20,708.33

141,17

Step-by-step explanation:

Breakeven quantity are the number of units produced and sold at which net income is zero

Breakeven quantity = fixed cost / price – variable cost per unit

Breakeven price = (fixed cost / quantity sold) + variable price per unit