introduction to finance210: what would be the OCK( PVIFA) 109,591.29 . number to get Using Break-Even Analysis: Consider a project with the following data: Accounting break-even quantity = 13,700 units; cash break-even quantity = 9,600 units; life = five years; fixed costs = $185,000; variable costs = $23 per unit; required return = 12 percent. Ignoring the effect of taxes, find the financial break-even quantity.

Solution:

In order to calculate the financial break-even, we need the OCF of the project. We can use the cash and accounting break-even points to find the OCF. First, we will use the cash break-even to find the price of the product as follows:

Q_C = FC/(P - v)

9,600 = $185,000/(P - $23)

P = $42.27

Now that we know the product price, we can use the accounting break-even equation to find the depreciation. Doing so, we find the annual depreciation must be:

Q_A = (FC + D)/(P - v)

13,700 = ($185,000 + D)/($42.27 - 23)

Depreciation = $79,010

We now know the annual depreciation amount. Assuming straight-line depreciation is used, the initial investment in equipment must be five times the annual depreciation, or:

Initial investment = 5($79,010)

Initial investment = $395,052

The PV of the OCF must be equal to this value at the financial break-even since the NPV is zero, so:

$395,052 = OCF(PVIFA_12%,5)

OCF = $109,591.29

Answer rating: 100% (QA)

The OCKPVIFA 10959129 is the present value interes... View the full answer