EXAMPLE PROBLEM – BREAK EVEN POINT

EXAMPLE PROBLEM – BREAK EVEN POINT

SOLUTION

SALES UNITS

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COMPARISON PLANS

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BREAK EVEN

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OPERATING LEVERAGE

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DOL

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EXPECTED LEVEL OF SALES

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EXPECTED VALUE OF PROFITS

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EXTERNAL FUNDS NEEDED

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EXTERNAL FINANCING NEEDED

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WHICH PLAN IS LESS COSTLY?

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EARNINGS AFTER TAXES

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EARNINGS AFTER TAXES

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ANALYSIS EXPECTED RETURN

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BEGINNING INVENTORY

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AVERAGE COLLECTION PERIOD

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AVERAGE PERIOD

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CREDIT SALES PER DAY

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CREDIT SALES

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AVERAGE INVENTORY UNITS

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TOTAL COST OF INVENTORY

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COMPARISON BY YEARS

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COMPUTE NOT TAKING CASH DISCOUNT

SOLUTION

BORROWING FUNDS?

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EFFECTIVE RATE OF INTEREST

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DISCOUNTED LOAN

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DOLLAR COST OF LOAN

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CASH FLOW

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COMPENSATING BALANCE

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COMPENSATING BALANCE

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DISCOUNTED INTEREST

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EFFECTIVE INTEREST

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COST OF NOT TAKING CASH DISCOUNT

SOLUTION

BORROW FUNDS AND TAKE DISCOUNT

SOLUTION