The break-even point. Break-Even Analysis: Break-even point refers to that amount, which doesn’t have an outcome of profit or loss and the difference of total revenue and expense is zero. Break-even analysis helps to find that level of sale through which the company can recover its cost and have no loss.

Question

The Fortune Company is considering a new investment. Financial projections for the investment are tabulated below. The corporate tax rate is 24 percent. Assume all sales revenue is received in cash, all operating costs and income taxes are paid in cash, and all cash flows occur at the end of the year. All net working capital is recovered at the end of the project. Year 0 Year 1 Year 2 Year 3 Year 4 Investment $ 28,000 Sales revenue $ 14,500 $ 15,000 $ 15,500 $ 12,500 Operating costs 3,100 3,200 3,300 2,500 Depreciation 7,000 7,000 7,000 7,000 Net working capital spending 340 390 440 340 ?

Answer 1

Question

Chapter 14, Problem 1P

Summary Introduction

To identify: The break-even point.

Break-Even Analysis:

Break-even point refers to that amount, which doesn’t have an outcome of profit or loss and the difference of total revenue and expense is zero. Break-even analysis helps to find that level of sale through which the company can recover its cost and have no loss.

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