Wettway Sailboat Corporation is considering whether to launch its new Margo-class sailboat. The selling price will be $53,000 per boat. The variable costs will be about half that, or $32,000 per boat, and fixed costs will be $585,000 per year. The total investment needed to undertake the project is $4,300,000. This amount will be depreciated straight-line to zero over the 5-year life of the equipment. The salvage value is zero, and there are no working capital consequences. Wettway has a required return of 14 percent on new projects.

Use the above expression to find the cash, accounting, and financial break-even points for Wettway Sailboat. Assume a tax rate of 23 percent.

Cash Break Even = Fixed Cost /(SP - VC) Cash Break Even

Accounting Break Even = (Fixed Costs+Depreciation)/(SP - VC)

We have to calculate annual sales volume (Q), at which NPV of the project at 14% required rate of return, is 0.

Step 1: calculate the OCF amount.

Step 2: Calculate required BEP

OCF-TCD FC + 1-TC P-v Cash break-even Accounting break-even Financial break-even OCF-TCD FC + 1-TC P-v Cash break-even Accounting break-even Financial break-even