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    Break Even Tutorial

    Uploaded by

    Ahmed Behery
    The document provides examples and questions related to project evaluation techniques like payback period (PW), internal rate of return (IRR), external rate of return (ERR), and bond valuation. Specifically, it includes: - An example calculation of a retrofitted heating system using the payback period method to determine if the project should be installed. - A second example of new equipment proposed to increase productivity, providing cash flows and asking to use the payback period method to evaluate if it is a sound proposal. - Additional examples are listed for IRR, ERR, and bond valuation but no details are provided. - Multiple questions related to calculating and comparing breakeven points for various manufacturing processes and investments

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd

    Break Even Tutorial

    Uploaded by

    Ahmed Behery
    25 views7 pages
    The document provides examples and questions related to project evaluation techniques like payback period (PW), internal rate of return (IRR), external rate of return (ERR), and bond valuation. Specifically, it includes: - An example calculation of a retrofitted heating system using the payback period method to determine if the project should be installed. - A second example of new equipment proposed to increase productivity, providing cash flows and asking to use the payback period method to evaluate if it is a sound proposal. - Additional examples are listed for IRR, ERR, and bond valuation but no details are provided. - Multiple questions related to calculating and comparing breakeven points for various manufacturing processes and investments

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    break even Tutorial

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    The document provides examples and questions related to project evaluation techniques like payback period (PW), internal rate of return (IRR), external rate of return (ERR), and bond valuation. Specifically, it includes: - An example calculation of a retrofitted heating system using the payback period method to determine if the project should be installed. - A second example of new equipment proposed to increase productivity, providing cash flows and asking to use the payback period method to evaluate if it is a sound proposal. - Additional examples are listed for IRR, ERR, and bond valuation but no details are provided. - Multiple questions related to calculating and comparing breakeven points for various manufacturing processes and investments

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    25 views7 pages

    Break Even Tutorial

    Uploaded by

    Ahmed Behery
    The document provides examples and questions related to project evaluation techniques like payback period (PW), internal rate of return (IRR), external rate of return (ERR), and bond valuation. Specifically, it includes: - An example calculation of a retrofitted heating system using the payback period method to determine if the project should be installed. - A second example of new equipment proposed to increase productivity, providing cash flows and asking to use the payback period method to evaluate if it is a sound proposal. - Additional examples are listed for IRR, ERR, and bond valuation but no details are provided. - Multiple questions related to calculating and comparing breakeven points for various manufacturing processes and investments

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 7

    Evaluating one project:

    PW examples:
    Q1:
    A retrofitted space-heating system is being considered for a small office building.
    The system can be purchased and installed for $110,000, and it will save an
    estimated 300,000 kilowatt-hours (kWh) of electric power each year over a six-year
    period. A kilowatt-hour of electricity costs $0.10, and the company uses a MARR
    of 15% per year in its economic evaluations of refurbished systems. The market
    value of the system will be $8,000 at the end of six years, and additional annual
    operating and maintenance expenses are negligible. Use the PW method to
    determine whether this system should be installed.
    Q2:
    A piece of new equipment has been proposed by engineers to increase the
    productivity of a certain manual welding operation. The investment cost is $25,000,
    and the equipment will have a market value of $5,000 at the end of a study period of
    five years. Increased productivity attributable to the equipment will amount to
    $8,000 per year after extra operating costs have been subtracted from the revenue
    generated by the additional production. A cash-flow diagram for this investment
    opportunity is given below. If the firm’s MARR is 20% per year, is this proposal a
    sound one? Use the PW method.
    AW Example:

    IRR Example:

    ERR Example
    Bond value Example
    Breakeven for one project:
    Q1:
    Indira Industries is a major producer of diverter dampers used in the gas turbine
    power industry to divert gas exhausts from the turbine to a side stack, thus
    reducing the noise to acceptable levels for human environments. Normal
    production level is 60 diverter systems per month, but due to significantly
    improved economic conditions in Asia, production is at 72 per month. The
    following information is available.
    Fixed costs FC = $2.4 million per month
    Variable cost per unit v = $35,000
    Revenue per unit r = $75,000
    (a) How does the increased production level of 72 units per month compare with the
    current breakeven point?
    (b) What is the current profit level per month for the facility?
    (c) What is the difference between the revenue and variable cost per damper that is
    necessary to break even at a significantly reduced monthly production level of 45
    units, if fixed costs remain constant?
    Q2:
    The fixed cost at Harley Motors is $5 million annually. The main product has
    revenue of $89 per unit and $45 variable cost. Estimate the following:
    (a) Breakeven quantity per year; and (b) annual profit if 100,000 units are sold,
    and if 200,000 units are sold.
    Q3:
    The manufacturing process at Simplicity XP has a fixed cost of $40,000 per month.
    A total of 100 units can be produced in 1 day at a cost of $3000 for materials and
    labor for the day. If the company’s MARR is 12% per year, compounded monthly,
    how many units must be sold each month at $50 per unit for the company to just
    break even?
    Q4:
    A professional photographer who specializes in wedding-related activities paid
    $48,000 for equipment that will have a $2000 salvage value after 5 years. He
    estimates that his costs associated with each event amount to $65 per day. If he
    charges $300 per day for his services, how many days per year must he be employed
    to break even at an interest rate of 8% per year?
    Breakeven between two alternatives
    Q5:
    A rotational molding operation has fixed costs of$10,000 per year and variable costs
    of $50 per unit If the process is automated via conveyor, its fixed cost will be
    $22,800 per year but its variable cost will be only $10 per unit. Determine the
    number of units each year necessary for the two operations to break even.
    Q6:

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