Problem:
You are considering a new product launch. The project will cost $1,400,000, have a 4 year life and have no salvage value; depreciation is straight-line to zero. Sales are projected at 180 units per year; price per unit will be $16,000, variable cost per unit will be $9,800 and fixed costs will be $430,000 per year. The required return on the project is 12% and the relevant tax rate is 35%.
Required:
Question 1: What is the accounting break-even level of output for this project?
Question 2: What is the degree of operating leverage at the accounting break-even point? How do you interpret this number?
Note: Please show basic calculation