Question

Grace P. has compiled this information related to a new project: Initial investment: $1,550,000; Fixed costs: $420,000; Variable costs: $8.10 per unit; Selling price: $28.80 per unit; Discount rate: 14 percent; Project life: 6 years; Tax rate: 25 percent. Fixed assets are depreciated using straight-line depreciation over the project's life. What is the financial break-even point?

38,522 |
||

39,211 |
||

40,286 |
||

41,804 |
||

42,374 |

Answer #1

Solution

Initial investment =$15,50,000

Selling price =$28.80 per unit

Variable cost =$8.10 per unit

Contribution per unit = $28.80-$8.10= $20.70

Fixed cost =$4,20,000

Project life = 6 years

Tax rate = 25%

Depreciation = 15,50,000/6= $2,58,333

Tax saving on depreciation = $2,58,333*0.25 = $64,583

Financial break even point :-

Initial investment = present value of ( sales - variable cost - fixed cost) (1- tax rate) + present value of tax saving on depreciation

Assume number of units sold be X

15,50,000 = [(28.80 - 8.10) *X * 0.75]* PVAF ( 14%, 6 years) - 4,20,000*0.75*PVAF (14%,6 years) + 64,583* PVAF (14%,6 years)

15,50,000 = 60.37156X - $12,24,930 + $2,51,142

X =( 15,50,000 + 12,24,930 - 2,51,142) / 60.37156

X = 25,23,78/60.37156= 41,804

Financial break even point = 41,804

Option d is correct i.e. 41,804

Grace P. has compiled this information related to a new project:
Initial investment: $1,550,000; Fixed costs: $420,000; Variable
costs: $8.10 per unit; Selling price: $28.80 per unit; Discount
rate: 14 percent; Project life: 6 years; Tax rate: 25 percent.
Fixed assets are depreciated using straight-line depreciation over
the project's life. What is the financial break-even point? 38,522
39,211 40,286 41,804 42,374

Calpine Company has the following information related to a new
project: Initial investment: $980,000; Fixed costs: $230,000;
Variable costs: $11.80 per unit; Selling price: $28.50 per unit;
Discount rate: 14 percent; Project life: 8 years; Tax rate: 25
percent. Fixed assets are depreciated using straight-line
depreciation over the project's life. What is the financial
break-even point?
28,194 units
27,615 units
26,534 units
25,418 units
29,093 units

the quorum company has a prospective 6 year project that
requires initial fixed assets costing $963,000, annual fixed costs
of $403,400, variable costs per unit of $123.60, a sales price per
unit of $249, a discount rate of 14 percent, and a tax rate of 21
percent. the asset will be depreciated straight-line to zero over
the life of the project.
explain why as a manager calculating accounting break-even sales
quantity and financial break-even sales quantity are important.

the quorum company has a prospective 6 year project that
requires initial fixed assets costing $963,000, annual fixed costs
of $403,400, variable costs per unit of $123.60, a sales price per
unit of $249, a discount rate of 14 percent, and a tax rate of 21
percent. the asset will be depreciated straight-line to zero over
the life of the project.
compute the financial break-even sales quantity

the quorum company has a prospective 6 year project
that requires initial fixed assets of $963,000, annual fixed
$403,400, variable costs $123.60 per unit, sales price of $249,
discount rate 14%, tax rate 21%. asset straight line depreciated to
zero over life of project.
compute accounting break even sales
compute financial break even quantity

The Mini-Max Company has the following cost information on its
new prospective project: Initial investment: $700 Fixed costs are $
200 per year Variable costs: $ 3 per unit Depreciation: $ 140 per
year Price: $8 per unit Discount rate: 12% Project life: 3 years
Tax rate: 34% Assume that you sell the machine for book value at
the end of year 3 so there is no capital gain or loss on the
initial investment. How many units per year...

Quad Enterprises is considering a new three-year expansion
project that requires an initial fixed asset investment of $2.52
million. The fixed asset will be depreciated straight-line to zero
over its three-year tax life and is estimated to have a market
value of $294584 at the end of the project. The project is
estimated to generate $2146553 in annual sales, with costs of
$809789. The project requires an initial investment in net working
capital of $360133. If the tax rate is...

Quad Enterprises is considering a new three-year expansion
project that requires an initial fixed asset investment of $2.67
million. The fixed asset will be depreciated straight-line to zero
over its three-year tax life and is estimated to have a market
value of $297260 at the end of the project. The project is
estimated to generate $2043001 in annual sales, with costs of
$843186. The project requires an initial investment in net working
capital of $374861. If the tax rate is...

A project with a life of 10 has an initial fixed asset
investment of $40,320, an initial NWC investment of $3,840, and an
annual OCF of –$61,440. The fixed asset is fully depreciated over
the life of the project and has no salvage value. If the required
return is 9 percent, what is the project's equivalent annual cost,
or EAC?
$-64,664.85
$-57,858.03
$-43,683.88
$-71,471.68
$-68,068.27
A gym owner is considering opening a location on the other side
of town. The...

The Quorum Company has a prospective 6-year project that
requires initial fixed assets costing $962,000, annual fixed costs
of $403,400, variable costs per unit of $123.60, a sales price per
unit of $249, a discount rate of 14 percent, and a tax rate of 21
percent. What is the present value break-even point in units per
year?
A. 4,995
B. 5,852
C. 6,144
D. 5,375
E. 6,081

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 38 minutes ago

asked 47 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago

asked 3 hours ago