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. The initial investment of $6,000 will be depreciated straight-line over its useful life of 5 years to a final value of zero, and the discount rate is 14%. What is the accounting break-even level of sales if the firm pays no taxes? (Do not round intermediate calculations. Round your answer to the nearest whole number.) What is the NPV break-even level of sales if the firm pays no taxes? (Do not round intermediate calculations. Round your answer to the nearest whole number.) What is the accounting break-even level of sales if the firm's tax rate is 40%? (Do not round intermediate calculations. Round your answer to the nearest whole number.) What is the NPV break-even level of sales if the firm's tax rate is 40%? (Do not round intermediate calculations. Round your answer to the nearest whole number.)

Explanation / Answer

Sale Price (a) $70.00 Material Cost (b) $35.00 Contribution Per Unit (c = a-b) $35.00 Fixed Cost (d) $1,600.00 Depreciation ( e) ($6000/5) $1,200.00 Total Fixed Cost (f=d+e) $2,800.00 a. Accounting Breakeven Sales without taxes 80 (Fixed Cost/Contribution per unit) b. NPV Sales without taxes 0 = (35x - 1600) * Annuity Factor at 14% for 5 years - 6000 or, 0 = {(35x - 1600)*3.433081} - 6000 or, 0 = 120.1578x - 5492.9296 - 6000 or, x = 95.6486 or 96 units Sale Price (a) $70.00 Material Cost (b) $35.00 Contribution Per Unit (c = a-b) $35.00 Post tax contribution per unit (d = 35*0.6) $21.00 Fixed Cost ( e) $1,600.00 Depreciation ( f) ($6000/5) $1,200.00 Total Fixed Cost (g=e+f) $2,800.00 Post tax fixed cost ($2800 * 0.6) $1,680.00 c. Accounting Breakeven Sales taxes 80 (Post tax Fixed Cost/Post tax Contribution per unit) NPV Sales = [(35*x - 2800) * 0.60 + 1200] * Annuity Factor at 14% for 5 years - 6000 or, 0 = (21x - 1680 + 1200)*3.433081 - 6000 or, 0 = 72.0947x - 1647.8789 - 6000 or, x = 106.081 or 106 units

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