If the Q is what the 1-year breakeven number of customers and they've said investment costs are 4M over 10 years, and annual opex = 0.1M… should we annualize the investment cost..and take it as 0.4M in year 1 and then add it to the annual opex? (since contribution margin per customer x # of customers = Total fixed costs + Investment costs)
If they were asking for year-2 breakeven, would it be 0.4M x 2=0.8M? Are breakevens even calculated for specific years?
Yes, you have the math right.
And yes, you may be asked to calculate breakeven for specific years. These are what-if scenarios, i.e., if I wanted to break even in only two years, how much would I have to sell.
In reality, what you are doing is solving for a specific Payback Period (this would be a more correct terminology than break even in this case, although it doesn't really make a difference).
Hi,
Great questions! Yes, if the investment costs are $4M over 10 years you can assume that it is amortized across the entire period (unless stated otherwise in the problem statement). Then you could treat the annual amortized investment costs similar to opex when analyzing breakeven.
Usually breakeven is calculated across a project's lifecycle but you can also calculate breakeven at specific points in time.
Hope this helps,
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Hi there,
Yes, if they say “4M over 10 years” then you can do this. But, make sure to double-check any assumptions with the interviewer.
If they say the investment costs are 4M period, then you would want to count that as just year 1.
Be very careful in situations like these to clarify with the interviewer your assumptions!
