Question

A project cost $1 initial million investment and would depreciate straight line to 0 in 10...

A project cost $1 initial million investment and would depreciate straight line to 0 in 10 years. Besides depreciation, the variable cost is 60% of sales and fixed cost is $100,000 per year. Assume the income tax of 21%. Which BE in accounting is 500,000.

If the discount rate is 8%, what is the NPV break even of sales?

Homework Answers

Answer #1

Depreciation = project cost / 10 years = 1,000,000 / 10 = $ 100,000 per year

Paeticilara amount
Break even sales 500,000
Less- variable cost @60% of sales 300,000
Less - fixed cost 100,000
Less- depreciation 100,000
Profit before tax 0
Less - tax 0
Profit after tax 0
Add- depreciation 100,000
Fred Cash flows after tax 100,000

NPV = Present value of cash infliws - initial investment

NPV = $ 100,000 * PVAF ( 8% ,10years)-1,000,000

NPV = $ 100,000 * 6.71008141 - 1,000,000

NPV at break even point = $ - 328,991.859

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