An Investment Has an Initial Cash Outflow of $210,000 for Fixed

question 47

Multiple Choice

An investment has an initial cash outflow of $210,000 for fixed assets that will be depreciated straight-line to zero over 4 years,which is the life of the project.The sales price is set at $19.95 a unit,the annual fixed costs are $237,000,and the variable cost per unit is $8.87.The tax rate is 22 percent and the discount rate is 11 percent.At what sales quantity per year will the investment break even on a financial basis?

• A)29,787 units
• B)29,143 units
• C)27,886 units
• D)28,096 units
• E)30,308 units

---

Definitions:

WACC

Weighted Average Cost of Capital; a calculation of a firm's cost of capital in which each category of capital is proportionately weighted.

Component Cost of Debt

The effective rate that a company pays on its current debt, incorporating tax effects.

Preferred Shares

Preferred Shares are a type of stock that grant holders preferential treatment over common stockholders in terms of dividends and assets during liquidation, but usually do not carry voting rights.

Rate of Return

The increase or decrease in the value of an investment, shown as a percentage of the original amount invested, over a given timeframe.