Modern Artifacts can produce keepsakes that will be sold for $80 each. Nondeprec

Question

Modern Artifacts can produce keepsakes that will be sold for $80 each. Nondepreciation fixed costs are $1,900 per year and variable costs are $60 per unit.

If the project requires an initial investment of $2,000 and is expected to last for 5 years and the firm pays no taxes. The initial investment will be depreciated straight-line over 5 years to a final value of zero, and the discount rate is 10%. What are the accounting and NPV break-even levels of sales? (Do not round intermediate calculations. Round your answers to the nearest whole number.)

What will be the accounting and NPV break-even levels of sales, if the firm's tax rate is 30%? (Do not round intermediate calculations. Round your answers to the nearest whole number.)

Modern Artifacts can produce keepsakes that will be sold for $80 each. Nondepreciation fixed costs are $1,900 per year and variable costs are $60 per unit.

Explanation / Answer

a>Accounting Breakeven lever of sales=1900/(80-60)=95

Depriciation inflow for 5 years=2000/5=400 , PV=400*3.7908

NPV Breakeven level=(400*3.7908)/(80-60)=75.81

b>Accounting Breakeven level=(1900-400/(1-0.30))/(80-60)=66.42

NPV Breakeven level=400*(1-0.30)*3.7908/(80-60)=53.07

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