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XYZ Co

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XYZ Co. is evaluating whether to invest in a project with the following information:                                                                                                                                                                                                                                                                                               

Project cost = $950,000

Project life = five years

Projected number of units sold per year = 10,000

Projected price per unit = $200

Projected variable cost per unit = 150

Fixed costs per year = $150,000

Required rate of return = 15%

Marginal tax rate = 35%

 

Assume straight-line depreciation to zero over five years, and ignore the half-year rule for accounting for depreciation.

a. Calculate the cash break-even sales quantity for this project.         

b. Calculate the accounting break-even sales quantity for this project.  

   

c.  Calculate the financial break-even sales quantity for this project.     

 

d.  Calculate the Degree of Operating Leverage (DOL) at the cash break-even, accounting break-even, and financial break-even sales quantities.