A company is wondering if a new 8-year project (with the relevant information below) is worth it. Each unit can be sold for Each unit can be produced for Additional total fixed costs (i.e., regardless of # of units produced) per year Production equipment can be bought for Depreciation of the production equipment, per year Company's income tax rate In addition, the discount rate appropriate for the project's level of risk is 14 percent per year. The production equipment follows straight-line depreciation method over the project's 8-year life, and will be worthless at the end of the project. = $44.20 = $11.05 = $482,000 = $944,000 = $118,000 = 22% a. In order to break even in the "accounting" sense, the company would need to sell units each year. (Do not round your intermediate calculations and only round your final answer to 2 decimal places, e.g., 32.16.) b. In order to break even in the "financial" sense, the company would need to sell units each year. (Do not round your intermediate calculations and only round your final answer to 2 decimal places, e.g., 32.16.) a. Accounting break-even level b. Financial break-even level units units
A company is wondering if a new 8-year project (with the relevant information below) is worth it. Each unit can be sold for Each unit can be produced for Additional total fixed costs (i.e., regardless of # of units produced) per year Production equipment can be bought for Depreciation of the production equipment, per year Company's income tax rate In addition, the discount rate appropriate for the project's level of risk is 14 percent per year. The production equipment follows straight-line depreciation method over the project's 8-year life, and will be worthless at the end of the project. = $44.20 = $11.05 = $482,000 = $944,000 = $118,000 = 22% a. In order to break even in the "accounting" sense, the company would need to sell units each year. (Do not round your intermediate calculations and only round your final answer to 2 decimal places, e.g., 32.16.) b. In order to break even in the "financial" sense, the company would need to sell units each year. (Do not round your intermediate calculations and only round your final answer to 2 decimal places, e.g., 32.16.) a. Accounting break-even level b. Financial break-even level units units
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:A company is wondering if a new 8-year project (with the relevant information below) is
worth it.
Each unit can be sold for
Each unit can be produced for
Additional total fixed costs (i.e., regardless of # of units
produced) per year
Production equipment can be bought for
Depreciation of the production equipment, per year
Company's income tax rate
= $44.20
= $11.05
a. Accounting break-even level
b. Financial break-even level
=
= $482,000
In addition, the discount rate appropriate for the project's level of risk is 14 percent per
year. The production equipment follows straight-line depreciation method over the
project's 8-year life, and will be worthless at the end of the project.
units
units
= $944,000
= $118,000
= 22%
a. In order to break even in the "accounting" sense, the company would need to sell
units each year. (Do not round your intermediate calculations and only round your
final answer to 2 decimal places, e.g., 32.16.)
b. In order to break even in the "financial" sense, the company would need to sell
units each year. (Do not round your intermediate calculations and only round your
final answer to 2 decimal places, e.g., 32.16.)
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