Answer:
The financial break-even quantity is 17,385.97
Explanation:
Cash Break even = Fixed Cost / (Price- variable Cost)
15,000 = $150,000 / (P-$32)
15,000 (P) -15,000*32 = $150,000
15,000 (P) - $480,000 = $150,000
15,000 (P) = $150,000 + $480,000
15,000 (P) = $630,000
P = $630,000/15,000
P = $42 per unit
From accounting break even quantity = 16,700 units, = QA
QA= (FC + D)/(P –v)
16,700 = ($150,000 + D)/($42 - $32)
16,700 = ($150,000 + D)/$10
16,700*$10 = ($150,000 + D)
$167,000 = ($150,000 + D)
$167,000 - $150,000 = D
D = $17,000
Therefore, the depreciated value is = $17,000
To find the annual depreciation amount we assume straight-line depreciation Initial investment = 4($17,000) = $68,000
The PV of the OCF must be equal to this value at the financial break even since the NPV is 0:
$68,000 = OCF (PVIFA15%, 4)
$68,000 = OCF * [ 1 - ( 1+ r)^-n ] / r
$68,000 = OCF * [ 1 - ( 1+ 0.15)^-4] / 0.15
$68,000 = OCF * 2.85
OCF = $68,000/2.85
OCF = $23,859.65
Therefore, Break-even level of OCF = $23,859.65
Then,
QF= ($150,000 + $23,859.65)/($42 – $32)
QF= 17,385.97
Therefore, financial break-even quantity is 17,385.97
