A project requires an initial investment of $1,000,000 and is depreciated straight-line to zero salvage over its 10-year life.

The project produces items that sell for $1,000 each, with variable costs of $700 per unit. Fixed costs are $350,000 per year.

What is the accounting break-even quantity? o Q = (FC + D)/(P v)

What is the operating cash flow at accounting break-even? o OCF= [PQ - vQ FC D] + D

• What is the cash break-even? o Q = (FC + OCF)/(P v); where OCF=0

• What is the financial break-even? I = 10%

o Find OCF where NPV = 0, Q = (OCF + FC) / (P v)

Show all work as follows:

Identify:

• FC = Fixed Cost

• D = Depreciation

• P = Price

• v = variable cost per unit

• OCF = operating cash flow (if needed)

  Then compute the break-even quantities.