Question

Ayden's Toys, Inc., just purchased a $510,000 machine to produce toy cars. The machine will be fully depreciated by the straight-line method over its six-year economic life. Each toy sells for $27. The variable cost per toy is $12, and the firm incurs fixed costs of $287,000 each year. The corporate tax rate for the company is 35 percent. The appropriate discount rate is 11 percent. What is the financial break-even point for the project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Break-even point units

Answer 1

Investment to be recovered over five years = 510,000/ FVAF

= 510,000/3.6959 = 137,990.86 after tax profit required each year.

Required sales units then is:

Particulars	Amount
Required profit	137,990.86
Less: depreciation tax shield	(35,700.00)
Required profit	102,290.86
Add: tax	55,079.69
Profit before tax	157,370.55
Add: fixed costs	287,000.00
Required contribution	444,370.55
/ contribution per unit	15.00
Units sold	29,624.70

Break even units are 29,624.70

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