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2. Consider a project to supply Detroit with 25,000 tons of machine screws annually for automobile production. You will need an initial $2,500,000 investment in
2. Consider a project to supply Detroit with 25,000 tons of machine screws annually for automobile production. You will need an initial $2,500,000 investment in threading equipment to get the project started; the project will last for five years. The accounting department estimates that annual fixed costs will be $654,000 and that variable costs should be $120 per ton; accounting will depreciate the initial fixed asset investment straight-line to zero over the five- year project life. The marketing department estimates that the automakers will let the contract at a selling price of $210 per ton. You require a return of 15 percent and face a marginal tax rate of 38 percent on this project. a. Find the accounting, cash, and financial break-even quantities. b. Find the degree of operating leverage at the base-case output level of 25.000 tons. c. Find the degree of operating leverage at the accounting break-even output level. d. Find the degree of operating leverage at the financial break-even output level
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