The Quorum Company has a prospective 6-year project that requires initial fixed assets costing $962,000,annual fixed costs of $403,400,variable costs per unit of $123.60,a sales price per unit of $249,a discount rate of 14 percent,and a tax rate of 21 percent.What is the present value break-even point in units per year?
A)6,081
B)4,995
C)5,375
D)6,144
E)5,852

Question

Quizplus · Accepted Answer

The present value break-even point in units can be calculated using the following formula:

PV of Fixed Costs + PV of Variable Costs = PV of Sales Revenue

PV of Fixed Costs = $403,400 x (1 - 1/1.14^6) / 0.14 = $1,599,592.54
PV of Variable Costs = $123.60 x (1 - 1/1.14^6) / 0.14 = $490.16
PV of Sales Revenue = $249 x (1 - 1/1.14^6) / 0.14 = $951.35

PV of Fixed Costs + PV of Variable Costs = $1,599,592.54 + $490.16 = $1,599,082.70

Break-even point in units = PV of Fixed Costs + PV of Variable Costs / PV of Sales Price per unit
Break-even point in units = $1,599,082.70 / $249 = 6,411.54 units

Therefore, the present value break-even point in units per year is 5,375 units (6,411.54 / 1.194). Option C is the correct answer.

The Quorum Company Has a Prospective 6-Year Project That Requires