Homework 11.Breakeven + Payback Period
1. Fixed cost for Universal Export are $600,000 annually. Its main line export is sold at revenue
of $2,10 per unit and has $1,50 variable cost. a) compute the annual breakeven quantity;
b)Plot the revenue and total cost relations, and estimate from your graph the annual profit if
1,3 million units are sold and if 1,8million units are sold.
2. Quality Construction is considering the purchased of a small load tractor for dirt scraping
and leveling. The equipment has the following estimates : initial cost of $75,000, a life of 15
years, a $5000 salvage value, an operating cost of $30 a day and annual maintenance cost of
$6000
Alternatively, Quality can lease the same tractor and a driver as needed for $210 per day. IF
the company’s minimum attractive rate of return is 12 % per year, how many days per year
must he scraper be required to justify its purchase.
3. A corporate headquarters manager has received two proposals from contractor to improve
the staff parking areas. Proposal A includes filling, grading, and paving at an initial cost of
$50,000. The life of the parking lot constructed in this manner is expected to be 4 years with
annual cost for maintenance and repainting of strips of $3000. Proposal B provides a higherquality pavement with an expected life of 16 years. The annual maintenance cost will be
negligible for the paved parking area. But the markings will have to be repainted every 2
years at a cost of $5000. If the company’s current MARR is 12% per year, how much can it
afford to spend for the paving contract now so the proposals would just break even.