A project requires an initial investment of $1,150,000 and is depreciated straight-line to zero salvage over its 10-year life. The project produces items that sell for $1,100 each, with variable costs of $750 per unit. Fixed costs are $350,000 per year.
1. What is the accounting break-even quantity? What is the operating cash flow at accounting break-even? What is the Degree of Operating Leverage (DOL) at this output level and what does the DOL imply?
2. What is the cash flow break-even quantity?
3. What is the financial break-even quantity given the required rate of return 12%? What is the Degree of Operating Leverage (DOL) at this output level (i.e., the financial break-even quantity)?