Modern Artifacts can produce keepsakes that will be sold for $80.00 each Nondepr

Question

Modern Artifacts can produce keepsakes that will be sold for $80.00 each Nondepreciation fixed costs are $1200 per year and variable costs are $60.00 per unit.

If the project requires an inital investment of $3000 and is expected to last for 5 years and the firm pays no taxes. The initial investemnt will be deprecited stratightline 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?

Accounting break--even levels of sales _____ units

NPV break-even levels of sales ____ units

What will be the accounting and NPV break-even of sales. If the firm's tax rate is 35%

Accounting break-even levels of sales _____units

NPV breakeven   _____units

Explanation / Answer

let sales = x

sale = 80x

FC = 1200

VC =60

Depreciation = 3000/5 = 600

for break even

profit = 0 = 80x-1200-60x-600

x = 1800/20 = 90 unit

now, cashflow each year = 20x-1200

NPV = 0 = -3000 +(20x-1200)*(PVIFA(10,5)

3000= (20x-1200)*(3.79)

3000/3.79)+(1200) = 20x

x = 1991.55/20 = 99.55 = 100

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