5 Solution

A. Estimate the survival or EBDAT breakeven amount in terms of survival revenues necessary for the SubRay Corporation to breakeven
next year.
Survival revenues (SR), when EBDAT = 0, are calculated as:
Variable Cost Revenue Ratio (VCRR) = (VC/R) = $180,000/$300,000 = 0.60
Cash Fixed Cost (CFC) = general and administrative + marketing + interest expense = $60,000 + $60,000 + $10,000 = $130,000
Survival Revenue = [CFC/(1-VCRR)] = [$130,000/(1 - 0.60)] = $130,000/0.40 = $325,000
Accuracy Check of Survival Revenues 325000

Cost of goods sold (60%) -195,000

Gross Profit 130,000
General and administrative -60,000
Marketing -60,000
Interest expenses -10,000
EBDAT $0
A. Assume that the product selling price is $50 per unit. Calculate the EBDAT breakeven point in terms of the number of units that will have to
be sold next year.
Survival revenues (SR) for a zero EBDAT =
$325,000/ $50 = 6,500 units

6. Solution

CASTILLO PRODUCTS COMPANY

Net income 75
Depreciation 40
Increase in accounts receivable -80
Increase in inventories -100
Increase in accounts payable 30
Increase in accrued liabilities Net
from Operating Activities 20 -15
Cash from Investing Activities:
Increase in gross fixed assets -90
Net from Investing Activities -90
Cash from Financing Activities:
Increase in bank loan 10
Increase in long-term debt 100
Cash dividends paid
Net from Financing Activities -35 75
Total net cash increase (decrease) -30
Cash at beginning of period 50
Total net cash increase (decrease) -30
Cash at end of period 20

Annual net cash burn= Operating activities + Investing activities = -15-95 = -105
Monthly burn rate = annual burn/12 = -8.75 per month
Time to Out of cash = Cash/ Monthly Burn = 2.3 Months
8 Solution
Cash from Operating Activities:
Net income 70
Depreciation 30
Increase in accounts receivable -30
Increase in inventories -53
Increase in accounts payable 15
Increase in accrued liabilities 13 45
Cash from Investing Activities:
Increase in gross fixed assets -90 -90
Cash from Financing Activities:
Increase in bank loan 7
Increase in common stock 35
Cash dividends paid
-20 22
Total net cash increase (decrease) -23
Cash at beginning of period 39
Total net cash increase (decrease) -23
Cash at end of period 16

Net cash flow from operationg acitivities is: 45, Net cash flow from investing is: -90, Net
cash flow from financing activities is : 22
There is decline in cash from 39 to 23

Operating activities = 45
Investing activities = -90

Annual Cash Burn = 45+ (-90) = -45

Variable costs: Cost of goods sold/ Net sales

= 270/450 = 60%
Fixed Costs: Opening expenses (46) and interest (4) = 50
EBDAT Breakeven= 50/(1-0.60) = 50/0 .40 =125 Survival
revenues (SR)