Cash break-even level of output

You have recently been hired by Intersoll Motors Inc. (IMI) in its relatively new treasury management department. IMI was founded eight years ago by Geoff Boycott. Geoff found a method to manufacture a cheaper battery that will hold a larger charge, giving a car powered by the battery a range of 700 km before requiring a charge. The cars manufactured by IMI are midsized and carry a price that allows the company to compete with other mainstream auto manufacturers. The company is privately owned by Geoff and his family and it had sales of $97 million last year. Cost of goods sold totaled $80M and depreciation was $2M.
IMI’s growth to date has come from its profit. When the company had sufficient capital, it would expand production. Relatively little formal analysis has been used in its capital budgeting process. Geoff has just read about capital budgeting technique and has come to you for help. For starters, the company has never attempted to determine its cost of capital, and Geoff would like you to perform the analysis. Because the company is privately owned and not yet publicly traded, base all weights on the book values instead of the market values.
IMI’s capital is made up of a bank loan and owner’s equity. It has a 15-year loan for 8,000,000 with an APR of 12.15% based on semi-annual compounding. IMI has been paying 95,260 monthly for 8 years. The required return on equity is 20%. The firm’s marginal tax rate is 35% and this is expected to continue indefinitely.
IMI has been exploring some growth opportunities. One opportunity that looks promising is a new factory that can produce battery operated Sports Utility Vehicles or SUV’s. SUVs are currently very popular with young families and the demographic is expected to continue to grow. The problem is that many consumers are not convinced a battery alone will provide the sufficient mileage and would prefer a hybrid of gas/battery. A plant (complete with equipment) that could produce hybrid SUV’s is expected to cost $11.5M. All factory and equipment costs have a CCA depreciation rate of 20% and an expected salvage value of $2.17M at the end of the project’s life in 8 years.
Hybrid SUV’s sell for $60,000 with a production cost of $50,000. Fixed costs are expected to be
$1,500,000 annually. Net working capital is expected to be $200,000 per year throughout the project’s life. IMI expects to be able to produce and sell 525 SUV’s a year every year of the project’s life.
At a board meeting, the VP of Marketing indicates that the company spent $150,000 on a marketing study that determined the expected future care sales. The VP of Operations mentions that IMI owns an empty warehouse that is currently on the market for $1,200,000. Instead of selling it, it could easily be converted to a new plant, saving the project money. Everyone nods enthusiastically in agreement. Geoff tasks you with determining whether the expansion and its possible upgrade option are a good investment for the company.
For the next three questions, assume the following: no taxes, depreciation is straight-line, no half-year rule, and salvage is still $2,170,000.
a.     What is the cash break-even level of output for the base case of this project?
b.     What is the accounting break-even level of output for this project?
c.     What is the financial break-even level of output for this project?

My MasterPapers
Calculate your paper price
Pages (550 words)
Approximate price: -

Why Us

Outstanding Academic Writing Service

At, you are assured of professional essay writing help from the leading experts online. Quality comes at the forefront of our custom writing service to ensure that all our customers are satisfied with the work delivered. We value repeat customers. For this reason, we ensure that each task is completed to perfection for high scores.

Top Writers

Our hiring process is highly intensive. The writers are exposed to a strict selection procedure before hiring to ensure that we acquire the most qualified, well-educated and experienced writers. Our team of writers, professors, editors and researchers will ensure that you get incredible results.

Plagiarism-Free Papers

We highly discourage plagiarism. For this reason, we have trained our writers in such a way that all the papers are written from scratch and are free from plagiarism. We also pay attention to ensure that each paper is completed as per the instructions provided. Referencing and citations are done as per the paper format selected by the customer. These include: APA, MLA, Chicago, Harvard, Turabian among others.

24/7 Customer Support

You can contact our support team via the chat window at the bottom right corner. Alternatively, feel free to email us via our support email: Our team is available 24/7 to respond to your queries and guide you though where need be.

Swift Delivery & 100% Money Back Guarantee

Simply choose the desired deadline when placing the order. The task is assigned to the most qualified writer as soon as the order is successfully placed. All the papers are delivered to you within the deadline selected. In case a paper cannot be delivered within the deadline selected, we request for a deadline extension within the shortest time possible.

Free Unlimited Revisions

Our customers can always request for a revision in case they feel that something needs to be added or changed after the final paper has been delivered. We do not charge for revisions. However, we highly discourage our customers from misusing this policy.

Try it now!

Calculate the price of your order

Total price:

How it works?

Follow these simple steps to get your paper done

Place your order

Fill in the order form and provide all details of your assignment.

Proceed with the payment

Choose the payment system that suits you most.

Receive the final file

Once your paper is ready, we will email it to you.

Our Services specializes in custom essay writing for all level of students. Simply relax as we get your paper done within the timeline indicated.


Academic Help Service

Our team of skilled writers and researchers is readily available to get any type of academic paper completed. We deliver high quality papers and projects to our customers to ensure that we maintain a long-term relationship that will shine your academic career.


Admission Essays & Professional Writing

An admission essay allows you to express yourself by providing personal details that wouldn’t have fit on other areas of an application. We have a team of experienced writers who will get you to the desired academic level through a professional and a personalized admission essay.


Editing & proofreading

Are you seeking for editing or proofreading help? We have a team of editors who will ensure that any issue within you paper has been addressed. Upload the paper to be cleaned up and relax as we get the job done.


Revision Support

At, you can always ask for revision in case you want some changes in you paper. We focus on ensuring that the grammar, research and formatting are done as per the latest academic writing standards.