Calculate the economic break-even level of sales for a project requiring an investment of $3,000,000 and providing as cash flows .15 * sales less $250,000.Assume the project will generate these cash flows for 10 years and that the discount rate is 10%.
A) $3,254,890
B) $3,504,890
C) $4,921,549
D) $19,686,667

Question

Quizplus · Accepted Answer

To calculate the economic break-even level of sales, we need to find out the level of sales where the project's total cash inflow becomes equal to the initial investment of $3,000,000.

Using the given formula:

EBE = Initial Investment / (Sales - Variable Costs)

We can plug in the values:

EBE = 3,000,000 / (0.15*F1F1F1S1 - 250,000)

EBE = 4,921,549

Therefore, the economic break-even level of sales is $4,921,549. 
So, the best choice is C.

Calculate the Economic Break-Even Level of Sales for a Project