Assume XYZ wishes to purchase a machine for $500k that will produce widgets which will sell for $50 each. Assume variable costs of $30/unit and other fixed costs will be $100k per year. Assume a tax rate of 25%, and assume that assets purchased will be in a CCA class with a rate of 20%. Assume further the assets purchased will have a salvage value of $20,000 after the 5 year life of the project, and that interest rates are 10%. a. Compute the after-tax contribution margin. b. Find the PV break-even volume.
Assume XYZ wishes to purchase a machine for $500k that will produce widgets which will sell for $50 each. Assume variable costs of $30/unit and other fixed costs will be $100k per year. Assume a tax rate of 25%, and assume that assets purchased will be in a CCA class with a rate of 20%. Assume further the assets purchased will have a salvage value of $20,000 after the 5 year life of the project, and that interest rates are 10%. a. Compute the after-tax contribution margin. b. Find the PV break-even volume.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Assume XYZ wishes to purchase a machine for $500k that will produce widgets which will sell for $50 each. Assume variable costs of $30/unit and other fixed costs will be $100k per year. Assume a tax rate of 25%, and assume that assets purchased will be in a CCA class with a rate of 20%. Assume further the assets purchased will have a salvage value of $20,000 after the 5 year life of the project, and that interest rates are 10%.
a. Compute the after-tax contribution margin.
b. Find the PV break-even volume.
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