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145,000

90,000

Calculating Break-Even A project has the following estimated data: price = $65 per unit; variable costs = $33 per unit; fixed costs = $4,000; required return = 16 percent; initial investment = $9,000; life = three years. Ignoring the effect of taxes, what is the accounting break-even quantity? The cash break-even quantity? The financial break-even quantity? What is the degree of operating leverage at the financial break-even level of output?

Using Break-Even Analysis Consider a project with the following data: accounting break-even quantity = 18,000 units; cash break-even quantity = 12,000 units; life = five years; fixed costs = $110,000; variable costs = $20 per unit; required return = 18 percent. Ignoring the effect of taxes, find the financial break-even quantity.

Ross et al.: Fundamentals of Corporate Finance, Sixth Edition, Alternate Edition

IV. Capital Budgeting

11. Project Analysis and Evaluation

© The McGraw-Hill Companies, 2002

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