Smith Brothers has a choice of two projects. Project A has annual fixed costs of $1,500,000 while project B has annual fixed costs of $3.5m. Project A has depreciation and amortization of $400,000 and project B has depreciation and amortisation of $750,000. The possible projects are for the sale of computer keyboards. These keyboards will sell for $50 each. The variable costs for project A are $32 and $21 for project B. The EBIT of project A is $350,000 and the EBITDA of Project B is $3.2m.

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

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b) Calculate the Accounting Cross Over Level of Unit Sales. (2 Marks)

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c) Calculate the Cash Flow DOL for Project A (1 Mark)

Answer: Answer d) Calculate the Accounting DOL for Project A (1 Mark)

Answer: Answer e) Calculate the Cash Flow DOL for Project B (1 Mark) Answer: Answer f) Calculate the Accounting DOL for Project B (1 Mark) Answer: Answer

g) Calculate the Cash Flow Break even for Project A. (1 Mark)

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h) Calculate the Cash Flow Break even for Project B. (1 Mark)

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i) Calculate the Accounting Break even for Project B. (1 Mark)

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j) Calculate the Accounting Break even for Project B. (1 Mark)

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k) If the accounting cross over level of sales for a project is 2m units and you expect to produce and sell 5,060,000 units, would you invest in the project with the high or low fixed costs? (1 Marks)