In this case, we have $200,000 in cash fixed costs to cover. Each unit contributes $2,500 - 1,500 = $1,000 towards covering fixed costs. The cash break-even is thus $200,000/$1,000 = 200 units. We have another $150,000 in depreciation, so the accounting break-even is ($200,000 + 150,000)/$1,000 = 350 units.

To get the financial break-even, we need to find the OCF such that the project has a zero NPV. As we have seen, the five-year annuity factor is 3.19935 and the project costs $750,000, so the OCF must be such that:

So, for the project to break even on a financial basis, the project's cash flow must be $750,000/3.19935, or $234,423 per year. If we add this to the $200,000 in cash fixed costs, we get a total of $434,423 that we have to cover. At $1,000 per unit, we need to sell $434,423/$1,000 = 435 units.

Project Management Made Easy

Project Management Made Easy

What you need to know about… Project Management Made Easy! Project management consists of more than just a large building project and can encompass small projects as well. No matter what the size of your project, you need to have some sort of project management. How you manage your project has everything to do with its outcome.

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