Calculate accounting and financial break-even quantities

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This problem concerns the effect of taxes on the various break-even measures. Consider a project to supply Detroit with 25,000 tons of machine screws annually for automobile production. You will need an initial $2,000,000 investment in threading equipment to get the project started; the project will last for five years. The accounting department estimates that annual fixed costs will be $800,000 and that variable costs should be $300 per ton; accounting will depreciate the initial fixed asset investment straight-line to zero over the five-year project life. It also estimates a salvage value of $220,000 after dismantling costs. The marketing department estimates that the automakers will let the contract at a selling price of $360 per ton. The engineering department estimates you will need an initial net working capital investment of $200,000. You require a return of 10 percent and face a marginal tax rate of 38 percent on this project. Calculate the accounting, cash, and financial break-even quantities.

Cash break-even

Accounting break-even

Financial break-even

Reference no: EM131925203

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