project requires an initial fixed asset investment of $148,000, has annual fixed costs of $39,800, a contribution margin of $14.62, a tax rate of 21 percent, a discount rate of 15 percent, and straight-line depreciation over the project's 3-year life. The assets will be worthless at the end of the project. What is the present value break-even point in units per year?

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Zviko Zviko · Answer 1 · 2021-03-26T03:20:12+01:00

Answer:

18,119 units

Explanation:

Break even Point is the level of activity at which the the project makes neither a profit nor loss.

Break even Point = (Annual fixed costs of a project + Annual equivalent cost of the project) ÷ Contribution per unit

where,

Annual fixed costs of a project = $39,800

Step 1 : Calculate PMT

This is to account for additional fixed costs on initial investment that needs to be covered.

N = 3

I = 15 %

PV = $148,000

FV = $0

PMT = ?

Using a Financial calculator, the PMT is $225,090

Step 2: Calculate Break Even Point

Break even Point = ($39,800 + $225,090) ÷ $14.62

= 18,119 units

Conclusion

The present value break-even point in units per year is 18,119 units