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Breakeven and Leverage calculations are used to adjudge the operational riskiness of a company, project or investment. The Breakeven and Leverage estimates are compared to projections to assess the forecasting risk associated with the project. Consider the following information for a project with an initial investment of $ 2,500,000, a five year project life and a required rate of return of 15%:

Unit Price Unit VC Fixed Costs Depreciation

$ 47 $ 22 $ 900,000 $ 450,000

What is the ACCOUNTING BREAKEVEN POINT for the project in UNITS?

What is the ACCOUNTING BREAKEVEN POINT in DOLLARS?

What would the CASH BREAKEVEN QUANTITY for the project be IF the CONTRIBUTION MARGIN PER UNIT could be raised to $ 30 through operating cost efficiencies?

What is the project’s FINANCIAL BREAKEVEN POINT for the project information first provided above (i.e. P = 47; VC = 22, FC = 900,000; DEPN = 450,000)?

What is the DEGREE of OPEATING LEVERAGE (DOL) at the FINANCIAL BREAKEVEN POINT calculated above?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M91544500

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