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Week 4 – Assignment: Choose Alternatives with Break-Even Analysis
Assignment
The Googolplex CEO wants to develop and sell a new outpatient heart-rate monitoring system. Engineers expect the new heart-rate monitoring system to have a profitable life between 1 and 5 years. Help the CEO to determine the break-even number of units that must be sold annually (without any return) to realize the break-even payback. The cost and revenue estimates are as follows:
Fixed costs: Initial investment of $800,000 with $10,000 annual operating cost.
Variable cost: $80 per unit
Revenue: Twice the variable cost for the first 5 years and 50% of the variable cost thereafter. In addition, assume a 5% credit to total revenue calculation based on savings associated with detecting heart problems before they become life-threatening.
Based on these inputs, write a paper describing the break-even analysis to inform your recommendation on the heart-rate monitoring system to the CEO. Use the graphical break-even analysis figure provided in the Week 4 introduction as a template. Ensure the graphical break-even analysis and paper capture the following:
Variable costs
Fixed costs
Total costs (Variable and Fixed costs combined)
Revenues
Credit due to early heart problem detection
Clearly identified break-even point
Clearly identified X-axis (# units) and Y-axis (costs in dollars)
Discussion on why break-even analysis is important and necessary for this problem.
Recommendation based on break-even analysis findings
Length: 2-3 pages, not including a title page.
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