You were approached by your friend Avi, who is a very talented engineer, on an urgent matter requiring your expertise. After 20 year working for others, Avi decided to open his own manufacturing shop to produce portable solar panel. According to Avi this is a brand new concept and it will be amazing.

Avi estimate his sales to be $1.2Million (based on $1,200 selling price per unit) with 50% contribution margin , according to his accountant. However AVI had to rent a building ,commit to insurance and has other fixed commitments all of which will add up to $400,000

Required ( Answer is your own words, show all your calculations , plagiarism will have serious academic consequences ) Round to the nearest two decimal places.

Part 1

a/Compute the Breakeven point in Dollars and Units

b/ Explain to Avi in your own words briefly what is meant by breakeven

Part 2

Calculate the

a/ Degree of Operating Leverage at the expected first-year sales volume assuming 100% equity financing

b/ Degree of Financial Leverage & Degree of Combined Leverage assuming that $500,000 can be borrowed with an 8% after tax interest cost of debt

c/ Explain what DOL, DFL and DCL result mean to Avi in non-finance terms in your own words.

Part 3

a/Based on the results above explain to Avi i in your own words the implications if his industry is highly cyclical.

b/What would be your recommendation to AVI