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# Break Even & Growth Rate Questions

See the attached file.
I.
A company has fixed cost of \$200,000. The sales price of its output is \$56 per unit. It has variable costs of \$31 per unit. The company is going to install new equipment which will cut the fixed costs to \$150,000 but which will increase variable costs to \$34 per unit. The sales price will remain at \$56.

1)Find the break even point in the original situation.
2)Find the break even point after the cost change (round to a whole number).

Show ALL work (all formulas & calculations)

II.
A company produces machinery and equipment used to lift and move equipment. During the last 20 years sales revenues have increased from \$2,335,000 to \$20,000,000.

1)Find the company's growth rate using the constant growth model with annual compounding.
2)Derive a forecast for seven years in the future.

Show ALL work (all formulas & calculations).

#### Solution Preview

I.
A company has fixed cost of \$200,000. The sales price of its output is \$56 per unit. It has variable costs of \$31 per unit. The company is going to install new equipment which will cut the fixed costs to \$150,000 but which will increase variable costs to \$34 per unit. The sales price will remain at \$56.

1) Find the break even point in the original situation.

Breakeven point = Fixed cost/Unit contribution margin
Unit contribution margin = selling price - variable cost
= 56-31 = ...

#### Solution Summary

The solution explains some questions relating to breakeven and growth rate.

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