Charles brothers are in the process of expanding their business. Project A has annual fixed costs of $5,500,000 while project B has annual fixed costs of $2.5m. Project A has depreciation and amortization of $750,000 and project B has depreciation and amortisation of $150,000. These projects relate to radio antennas. These antennas will sell for $120 each. The variable costs for project A are $30 and $70 for project B. The EBIT of project A is $2,500,000 and the EBITDA of Project B is $700,000.

a) Calculate the Cash Flow Cross Over Level of Unit Sales. (2 )

b) Calculate the Accounting DOL for Project A. (2 )

c) Calculate the Cash Flow DOL for Project B. (2)

d) Calculate the Accounting Break even for Project A. (2 )

e) If the cash flow cross over level of sales for a project is 2m units and you expect to produce and sell 1,560,000 units, would you invest in the project with the high or low fixed costs? Write the appropriate answer. (2 )

Low Fixed Costs or High Fixed Costs