A project has the following estimated data: price = $80 per unit; variable costs = $55 per unit; fixed costs = $25,000; required return = 15%; initial investment = $44,000; life = five years. What is the financial break-even quantity?
A) 1,000 units.
B) 1,352 units.
C) 1,525 units
D) 1,775 units
E) 1,950 units

Question

Quizplus · Accepted Answer

The financial break-even quantity is calculated by finding the quantity at which the net present value (NPV) of the project is zero. This involves covering both fixed costs and the required return on the initial investment. The formula is: Break-even quantity = (Fixed Costs + Required Return * Initial Investment) / (Price per unit - Variable Cost per unit). Substituting the given values: Break-even quantity = ($25,000 + 0.15 * $44,000) / ($80 - $55) = 1,525 units.

A Project Has the Following Estimated Data: Price = $80