BREAK-EVEN ANALYSIS Based On Accounting Profit

Inputs
$150,000 Break-Even Point Based On Acct. Profit = 0
Fixed Costs $30,000 30 $120,000
$90,000 Total
Sales Revenue / Unit $6.00 6 Costs
$60,000
Sales
Variable Costs / Unit $4.00 4 $30,000 Revenue
Accounti
$0 ng Profit

($30,000)
($60,000)
0 5,000Unit Sales
10,000 15,000 20,000

Calculate the Break-even Point using the Formula

Break-even Point (Unit Sales) 15,000

Back solve for the Break-even Point using the Income Statement
Unit Sales 15,000
Sales Revenue $90,000
Variable Costs $60,000
Gross Margin $30,000
Fixed Costs $30,000
Accounting Profit $0
Data Table: Sensitivity of Costs, Revenues, and Acct. Profit to Unit Sales
Input Values for Unit Sales
Output Formulas: $0 5,000 10,000 15,000 20,000 25,000
Total Costs $90,000 $50,000 $70,000 $90,000 $110,000 $130,000
Sales Revenue $90,000 $30,000 $60,000 $90,000 $120,000 $150,000
Accounting Profit $0 ($20,000) ($10,000) $0 $10,000 $20,000
BREAK-EVEN ANALYSIS Based On NPV
(in thousands of $)
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7
Key Assumptions
Sales Growth Rate 55.0% 40.0% 25.0% 5.0% -20.0% -50.0%
Change in Sales Growth Rate -15.0% -15.0% -20.0% -25.0% -30.0%
Inflation Rate 2.0% 2.5% 3.0% 3.5% 4.0% 4.0% 4.0%
Real Cost of Capital 11.0% 11.2% 11.4% 11.6% 11.8% 12.0% 12.2%
Tax Rate 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0%

Discounting
Discount Rate = Cost of Capital 13.2% 14.0% 14.7% 15.5% 16.3% 16.5% 16.7%
Cumulative Discount Factor 0.0% 13.2% 29.0% 48.1% 71.0% 98.9% 131.6% 170.3%

Price or Cost / Unit

Unit Sales 1,875 2907 4070 5087 5342 4273 2137
Sales Revenue / Unit $9.70 $9.94 $10.24 $10.60 $11.02 $11.46 $11.92
Variable Cost / Unit $7.40 $7.59 $7.81 $8.09 $8.41 $8.75 $9.10
Cash Fixed Costs $5,280 $5,412 $5,574 $5,769 $6,000 $6,240 $6,490

Cash Flow Forecasts

Sales Revenue $18,192 $28,903 $41,678 $53,921 $58,881 $48,989 $25,474
Variable Costs $13,879 $22,050 $31,796 $41,135 $44,920 $37,373 $19,434
Gross Margin $4,314 $6,853 $9,882 $12,785 $13,962 $11,616 $6,040

Cash Fixed Costs $5,280 $5,412 $5,574 $5,769 $6,000 $6,240 $6,490
Depreciation $1,421 $1,421 $1,421 $1,421 $1,421 $1,421 $1,421
Total Fixed Costs $6,701 $6,833 $6,996 $7,191 $7,422 $7,662 $7,911

Operating Profit ($2,388) $20 $2,887 $5,594 $6,540 $3,954 ($1,871)

Taxes ($836) $7 $1,010 $1,958 $2,289 $1,384 ($655)
Net Profit ($1,552) $13 $1,876 $3,636 $4,251 $2,570 ($1,216)

Add Back Depreciation $1,421 $1,421 $1,421 $1,421 $1,421 $1,421 $1,421
Operating Cash Flow ($131) $1,434 $3,298 $5,058 $5,672 $3,992 $205

Investment in Plant & Equip ($11,350) $1,400

Cash Flows ($11,350) ($131) $1,434 $3,298 $5,058 $5,672 $3,992 $1,605
Present Value of Each Cash Flow ($11,350) ($115) $1,111 $2,227 $2,957 $2,852 $1,723 $594
Net Present Value ($0)

Data Table: Sensitivity of Net Present Value to Year 1 Unit Sales

 and Year 2 Sales Growth Rate
Output Formula: Input Values for Year 1 Unit Sales
Net Present Value ($0) 1,700 1,900 2,100 2,300
45.0% ($6,767) ($4,692) ($2,618) ($543)
Input Values for Year 2 50.0% ($4,673) ($2,352) ($31) $2,290
Sales Growth Rate 55.0% ($2,283) $319 $2,921 $5,523
60.0% $442 $3,365 $6,288 $9,210
65.0% $3,548 $6,836 $10,124 $13,412

NPV Break-Even Contour (Based On NPV = 0) Across

Net Present Value

Year 1 Unit Sales And Year 2 Sales Growth Rate

$15,000

$10,000 NPV Break-Even

Contour

$5,000

$0

($5,000)

($10,000)
65.0
2,300 60.0 %
2,100 55.0 %
1,900 50.0 %
1,700 45.0 %
Year 1 Unit Sales % Year 2 Sales Growth Rate