Solution-What is the accounting break-even level of output

What is the accounting break-even level of output

Reference no: EM133056694

Question - You are considering a new product launch. The project will cost $1,400,000, 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 $16,000. Variable cost per unit will be $9,800 and fixed costs will be $430,000 per year. The required return on the project is 12% and relevant tax rate is 35%.

1. Based on your experience, you think the unit sales, variable cost and fixed cost projections given here are probably accurate to within a +/-10% spread. What are the upper and lower bounds for these projections? What is the base-case NPV? What are the best case and worst case scenarios?

2. Evaluate the sensitivity of your base-case NPV to changes in fixed costs.

3. What is the cash break-even level of output for this project?

4. What is the accounting break-even level of output for this project? What is the degree of operating leverage at the accounting break-even point?

Reference no: EM133056694

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What is the accounting break-even level of output

Reference no: EM133056694

Reference no: EM133056694

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