A company is considering the opportunity to invest into a new 12- year project: manufacturing and selling remote-controlled tree houses. $600,000 would need to be spent upfront to cover the cost of buying the necessary production equipment, which will be depreciating at a constant rate each year over its 12-year economic life. The equipment will be worthless when the project ends. Additional information regarding the tree houses production: $3,500 in per-tree-house costs, a.k.a. variable cost of production $42,000 in total (i.e., not per tree house) annual fixed production costs Each sold tree house is estimated to bring the company $4,200. The tax rate of 34% applies to the company's taxable income each year. This project requires a 6% annual rate of return. Answer the following: If the company manufactures and sells [Select] ["232", "178", "140",
A company is considering the opportunity to invest into a new 12- year project: manufacturing and selling remote-controlled tree houses. $600,000 would need to be spent upfront to cover the cost of buying the necessary production equipment, which will be depreciating at a constant rate each year over its 12-year economic life. The equipment will be worthless when the project ends. Additional information regarding the tree houses production: $3,500 in per-tree-house costs, a.k.a. variable cost of production $42,000 in total (i.e., not per tree house) annual fixed production costs Each sold tree house is estimated to bring the company $4,200. The tax rate of 34% applies to the company's taxable income each year. This project requires a 6% annual rate of return. Answer the following: If the company manufactures and sells [Select] ["232", "178", "140",
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
9
![A company is considering the
opportunity to invest into a new 12-
year project: manufacturing and selling
remote-controlled tree houses.
$600,000 would need to be spent
upfront to cover the cost of buying the
necessary production equipment,
which will be depreciating at a
constant rate each year over its 12-year
economic life. The equipment will be
worthless when the project ends.
Additional information regarding the
tree houses production:
$3,500 in per-tree-house costs, a.k.a.
variable cost of production
$42,000 in total (i.e., not per tree
house) annual fixed production costs
Each sold tree house is estimated to
bring the company $4,200.
The tax rate of 34% applies to the
company's taxable income each year.
This project requires a 6% annual rate
of return.
Answer the following:
If the company manufactures and
sells [Select] ["232", "178", "140",
"119", "88", "68"] tree houses each year,
then it will break even in the "financial"
sense. However, if the cost of buying
the necessary production equipment
turns out [Select] ["higher",
"lower"], the required annual break-
even number of sold tree houses.
would need to be higher.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F0b99457a-5d7e-4e9f-bfbd-f63bbdae6381%2Fce0274c1-aed6-4baa-9d2c-c90a88d441c8%2F1pw96f8_processed.jpeg&w=3840&q=75)
Transcribed Image Text:A company is considering the
opportunity to invest into a new 12-
year project: manufacturing and selling
remote-controlled tree houses.
$600,000 would need to be spent
upfront to cover the cost of buying the
necessary production equipment,
which will be depreciating at a
constant rate each year over its 12-year
economic life. The equipment will be
worthless when the project ends.
Additional information regarding the
tree houses production:
$3,500 in per-tree-house costs, a.k.a.
variable cost of production
$42,000 in total (i.e., not per tree
house) annual fixed production costs
Each sold tree house is estimated to
bring the company $4,200.
The tax rate of 34% applies to the
company's taxable income each year.
This project requires a 6% annual rate
of return.
Answer the following:
If the company manufactures and
sells [Select] ["232", "178", "140",
"119", "88", "68"] tree houses each year,
then it will break even in the "financial"
sense. However, if the cost of buying
the necessary production equipment
turns out [Select] ["higher",
"lower"], the required annual break-
even number of sold tree houses.
would need to be higher.
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