Modern Artifacts can produce keepsakes that will be sold for $70 each. Nondeprec

Question

Modern Artifacts can produce keepsakes that will be sold for $70 each. Nondepreciation fixed costs are $1,600 per year and variable costs are $35 per unit.

If the project requires an initial investment of $6,000 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 14%. 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 40%? (Do not round intermediate calculations. Round your answers to the nearest whole number.)

Modern Artifacts can produce keepsakes that will be sold for $70 each. Nondepreciation fixed costs are $1,600 per year and variable costs are $35 per unit.

Explanation / Answer

a>Accounting Brek-even=Fixed Cost/(Sales-Variable Cost)=1600/(70-35)=45.71 or say 46

NPV=6000-1200/(1.14^1)-1200/(1.14^2)-1200/(1.14^3)-1200/(1.14^4)-1200/(1.14^5)=1880

NPV Break-even level of Sales=1880/(70-35)=53.71 or 54

b>Accounting Break-even Level==Fixed Cost/(Sales-Variable Cost)=1600/(70-35)=45.71 or say 46

NPV Break-even level of Sales=1880*(100/60)/(70-35)=89.52 or 90

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