Question

Break-even calculations are most often concerned with the effect of a shortfall in sales, but they could equally well focus on any other component of cash flow. Dog Days is considering a proposal to produce and market a caviar-flavored dog food. It will involve an initial investment of $90,000 that can be depreciated for tax straight-line over 10 years. In each of years 1 to 10, the project is forecast to produce sales of $100,000 and to incur variable costs of 50% of sales and fixed costs of $30,000. The corporate tax rate is 30%, and the cost of capital is 10%

**a.** Calculate the NPV and accounting break-even
levels of fixed costs. **(Do not round intermediate
calculations. Round your answers to 2 decimal places.)**

**FC at NPV Breakeven ________**

**FC at accounting breakeven _________**

**b) b.** Suppose that you are worried that the
corporate tax rate will be increased immediately after you commit
to the project. Calculate the break-even rate of taxes. **(Do
not round intermediate calculations. Enter your answer as a percent
rounded to 2 decimal places.)**

**Break-even tax rate __________%**

**c.** How would a rise in the tax rate affect the
accounting break-even point?

no effect, decrease, or increase

Answer #1

**C.**

The accounting break-even point continues as before regardless of changes in the tax rate as it considers just the pre-tax benefit to recuperate the fixed expenses. Thus, it is unaffected by tax changes.

Break-even calculations are most often concerned with the effect
of a shortfall in sales, but they could equally well focus on any
other component of cash flow. Dog Days is considering a proposal to
produce and market a caviar-flavored dog food. It will involve an
initial investment of $90,000 that can be depreciated straight-line
over 10 years. In each of years 1-10, the project is forecast to
produce sales of $100,000, and to incur variable costs of 50% of
sales...

Consider a project with the following data: accounting
break-even quantity = 5,400 units; cash break-even quantity = 5,000
units; life = five years; fixed costs = $200,000; variable costs =
$38 per unit; required return = 10 percent. Ignoring the effect of
taxes, find the financial break-even quantity.
(Do not round intermediate calculations and round your
final answer to 2 decimal places, e.g., 32.16.)

Consider a project with the following data: accounting
break-even quantity = 5,500 units; cash break-even quantity = 5,000
units; life = six years; fixed costs = $170,000; variable costs =
$26 per unit; required return = 8 percent. Ignoring the effect of
taxes, find the financial break-even quantity. (Do not
round intermediate calculations and round your answer to 2 decimal
places, e.g., 32.16.)

Consider a project with the following data:
Accounting break-even quantity =
13,800 units;
Cash break-even quantity = 10,500
units;
Life = 5 years;
Fixed costs = $125,000;
Variable costs = $32 per unit;
Required return = 14 percent.
Ignoring the effect of taxes, find the financial break-even
quantity. (HINT: Use the appropriate break even
formulas to identify the unknown variables in the financial
breakeven calculation).

Modern Artifacts can produce keepsakes that will be sold for $80
each. Nondepreciation fixed costs are $2,800 per year, and variable
costs are $40 per unit. The initial investment of $5,000 will be
depreciated straight-line over its useful life of 5 years to a
final value of zero, and the discount rate is 12%. a. 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...

Project #1 -
Break Even Analysis A simple break even analysis asks the
question: How many books do you have to sell in order to make back
your initial investment, otherwise known as breaking even. We make
this calculation by looking at the total income, or gross sales,
and equating it to the sum of the fixed costs, variable costs and
profit from the items. Breaking even means that you go from
negative profit to positive profit and the actual...

Problem 10-11 Break-Even (LO3)
Dime a Dozen Diamonds makes synthetic diamonds by treating
carbon. Each diamond can be sold for $120. The materials cost for a
standard diamond is $70. The fixed costs incurred each year for
factory upkeep and administrative expenses are $215,000. The
machinery costs $2.3 million and is depreciated straight-line over
10 years to a salvage value of zero.
a. What is the accounting break-even level of
sales in terms of number of diamonds sold?
b. What...

Dime a Dozen Diamonds makes synthetic diamonds by treating
carbon. Each diamond can be sold for $100. The materials cost for a
standard diamond is $40. The fixed costs incurred each year for
factory upkeep and administrative expenses are $219,000. The
machinery costs $1.5 million and is depreciated straight-line over
10 years to a salvage value of zero.
a. What is the accounting break-even level of
sales in terms of number of diamonds sold? (Do not round
intermediate calculations.)
b....

Dime a Dozen Diamonds makes synthetic diamonds by treating
carbon. Each diamond can be sold for $100. The materials cost for a
standard diamond is $40. The fixed costs incurred each year for
factory upkeep and administrative expenses are $217,000. The
machinery costs $2.6 million and is depreciated straight-line over
10 years to a salvage value of zero.
a. What is the accounting break-even level of sales in terms
of number of diamonds sold? (Do not round intermediate
calculations.)
b....

Dime a Dozen Diamonds
makes synthetic diamonds by treating carbon. Each diamond can be
sold for $130. The materials cost for a standard diamond is $80.
The fixed costs incurred each year for factory upkeep and
administrative expenses are $206,000. The machinery costs $1.2
million and is depreciated straight-line over 10 years to a salvage
value of zero.
a.
What is the accounting break-even level of sales in terms of number
of diamonds sold? (Do not round intermediate
calculations.)
b....

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