JetSet Machinations, Inc. expects to become very successful in the manufacture and sales of its fuel-efficient high speed airplane, the S2S-900. This plane will be sold at about $70 million per plane. JMI executive staff has asked you to provide them a slide presentation in the next staff meeting which gives calculations for profit and break-even. This presentation will be the basis of the meeting discussion.
Assume that JMI's annual fixed costs for the S2S-900 are $950 million, and its variable cost per airplane is $45 million.
1. Compute JMI's break-even point for the number of S2S-900 airplanes and dollars of sales.
2. Suppose JMI plans to sell forty-two S2S-900 airplanes in 2002. Compute JMI's projected operating profit.
3. Suppose JMI increased its fixed costs by $84 million and reduced variable costs per airplane by $2 million. Compute its operating profit if forty-two S2S-900 airplanes are sold. Compute the break-even point. Comment on your results.
4. Next, ignore requirement 3. Suppose fixed costs do not change, but variable costs increase by 10% before deliveries of S2S-900 airplanes begin for the year. Compute the new break-even point.
Individual portion- Build your own spreadsheet for these calculations:
1. What would happen to expected cash flows under different discount rates?
2. How will the present value of the project vary according to cash flows different from a set forecast?
3. Create test numbers to show the effects under varying circumstances.
Answers to questions on Breakeven Analysis.