1. A project under consideration costs $900,000, has a five-year life with no salvage value and straight-line depreciation to zero. Required return is 17% and tax rate is 34%. Sales are projected at 1,000 units per year. Price per unit is $2,500 and variable cost per unit is $1,500. Fixed Costs are $600,000 per year.

Break-even Analysis (Please solve by hand and not in excel)

Cash Break-even Quantity

Where OCF = 0

Q = (FC)/(P v) (ignoring taxes)

Accounting Break-even Quantity

Where NI = 0

Q = (FC + D)/(P v)

Financial Break-even Quantity

Where NPV = 0

What OCF (PMT) makes NPV = 0?

Q = ((OCF from above) + Fixed Cost)/(P v)

Cash B-E < Accounting B-E < Financial B-E

1. What is the Cash Break-even quantity?

2. What is the Accounting Break-even quantity?

3. What is the Financial Break-even quantity?