Modern Artifacts can produce keepsakes that will be sold for $70 each. Nondeprec
ID: 2654037 • Letter: M
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
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.)
Annual Depreciation = 6000/5 = $ 1200
Accounting break-even levels of sales = (Nondepreciation fixed costs + Depreciation)/(sales Price - variable costs)
Accounting break-even levels of sales = (2300+1200)/(70-42)
Accounting break-even levels of sales = 125 Units
NPV break-even levels of sales
Required Annual Cash Flow = Initial Investment/PVA(10%,5)
Required Annual Cash Flow = 6000/3.790787
Required Annual Cash Flow = $ 1582.78
NPV break-even levels of sales = ((Required Annual Cash Flow + Annual Depreciation*tax rate)/ (1-tax rate ) + Fixed Cost)/(sale Price - Variable cost)
NPV break-even levels of sales = ((1582.78+1200*0%)/(1-0%) + 2300)/(70-42)
NPV break-even levels of sales = 139 Units
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.)
Annual Depreciation = 6000/5 = $ 1200
Accounting break-even levels of sales = (Nondepreciation fixed costs + Depreciation)/(sales Price - variable costs)
Accounting break-even levels of sales = (2300+1200)/(70-42)
Accounting break-even levels of sales = 125 Units
NPV break-even levels of sales
Required Annual Cash Flow = Initial Investment/PVA(10%,5)
Required Annual Cash Flow = 6000/3.790787
Required Annual Cash Flow = $ 1582.78
NPV break-even levels of sales = ((Required Annual Cash Flow + Annual Depreciation*tax rate)/ (1-tax rate ) + Fixed Cost)/(sale Price - Variable cost)
NPV break-even levels of sales = ((1582.78+1200*40%)/(1-40%) + 2300)/(70-42)
NPV break-even levels of sales = 205 Units
a.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.)
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