M5 Project Assignment

M3 Working Ahead

Name

Institution

The Break-Even Point

The break-even point analysis is a system that assesses the margin of safety by comparing the revenues and the costs in a project. in most cases, the break-even point is calculated by comparing the amount of units that have to be sold in order to cover for the fixed and variable costs. In the case of Dr. Pepper Snapple Group, Inc, the break-even point analysis will be based on the number of units that the company has to sell in order to cover for all expenses.

Break-even point in units= Fixed Costs/(Sales price per unit-variable cost per unit)

=$100,000/$75-$67

=$100,000/$8

=12,500 units

Internal Rate of Return

The internal rate of return (IRR) is the interest rate that brings a series of cash flows to a present value of zero. IRR is used to measure the profitability of projects. In this case, it will be used to assess the profitability of the project undertaken by Dr. Pepper Snapple Group, Inc.

With a break-even point in units of 12,500, and a calculated volume of 12,500, the company can reach its break-even point within one period.

(NPV) 0 = P0 + P1/(1+IRR) + P2/(1+IRR)2 + P3/(1+IRR)3 + . . . +Pn/(1+IRR)n

0=937,500+937,500(1+IRR)

0=937,500+937,500+937,500IRR

0=1,875,000+937,500IRR

937,500IRR=-1,875,000

IRR=-2%

Net Present Value

NPV=-937,500+(75*12,500) (1-2%)

=937,500+937,500(1-0.02)

=937,500+918750

=1,856,250