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 $2,300 per year and variable costs are $42 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 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 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 $2,300 per year and variable costs are $42 per unit.

Explanation / Answer

a. Accounting breakeven point (Units) = Fixed Costs / (Sales Price - Variable Costs oer unit) =2300 / (70-42) = 82 Units   b. Calculation if NPV Breakeven Sales (Units) At NPV Breakeven Sales (Units) the present value if cash inflows shall be eqaul to the cost of investment Present value of cash inflows = (Units *(Sales Price - Variable cost per unit) - Fixed Costs)* PVAF (10%, 5 Years ) = (Units * (70-42) - 2300)*3.79079 = (Units * 28 - 2300)*3.79079 Cost of investment =$6000 Hence , At breakeven (Units * 28 - 2300)*3.79079 = 6000 (Units * 28 - 2300) = 6000 /3.79079 (Units * 28 - 2300) = 1582.78 Units = (1582.78 +2300) / 28 Units = 139

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