Financial break-even Analysis. You are considering investing in a company that sells steaks to local restaurants. Use the following information: Sales price per steak = $43.80 Variable costs per steak = $10.85 Fixed costs per year = $466,000 Depreciation per year = $138,000 Tax rate = 23% The discount rate for the company is 15 percent, the initial investment in equipment is $966,000, and the project’s economic life is 7 years. Assume the equipment is depreciated on a straight-line basis over the project’s life and has no salvage value. What is the financial break-even level for this project in units?

Financial break-even Analysis. You are considering investing in a company that sells steaks to local restaurants. Use the following information: Sales price per steak = $43.80 Variable costs per steak = $10.85 Fixed costs per year = $466,000 Depreciation per year = $138,000 Tax rate = 23% The discount rate for the company is 15 percent, the initial investment in equipment is $966,000, and the project’s economic life is 7 years. Assume the equipment is depreciated on a straight-line basis over the project’s life and has no salvage value. What is the financial break-even level for this project in units?

Entrepreneurial Finance

6th Edition

ISBN:9781337635653

Author:Leach

Publisher:Leach

Chapter4A: Nopat Breakeven: Revenues Needed To Cover Total Operating Costs

Section: Chapter Questions

Problem 1EP

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F1
You are considering investing in a company that cultivates abalone for sale to local restaurants. Use the following information: Sales price per abalone = $43 Variable costs per abalone = $10.45 Fixed costs per year = $435,000 Depreciation per year = $130,000 Tax rate = 21% The discount rate for the company is 15 percent, the initial investment in equipment is $910,000, and the project’s economic life is seven years. Assume the equipment is depreciated on a straight-line basis over the project’s life and has no salvage value. a. What is the accounting break-even level for the project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What is the financial break-even level for the project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
9. Solve the following three independent scenarios: A grocery store is considering the purchase of a new refrigeration unit with an initial investment of $412,000, and the store expects a return of $100,000 in year one, $72,000 in years two and three, $65,000 in years four and five, and $38,000 in year six and beyond, what is the payback period? Payback period = ? years. Round your Payback Period (PB) answer to two decimal places (i.e. 12.34). An auto repair company needs a new machine that will check for defective sensors. The machine has an initial investment of $224,000. Incremental revenues, including cost savings, are $120,000, and incremental expenses, including depreciation, are $50,000. There is no salvage value. What is the accounting rate of return (ARR)? Accounting Rate of Return (ARR) = ? . Round your ARR answer, in percentage format, to two decimal places (i.e. 12.34%).
Each of the following scenarios is independent. All cash flows are after-tax cash flows. Required: 1. Patz Corporation is considering the purchase of a computer-aided manufacturing system. The cash benefits will be 800,000 per year. The system costs 4,000,000 and will last eight years. Compute the NPV assuming a discount rate of 10 percent. Should the company buy the new system? 2. Sterling Wetzel has just invested 270,000 in a restaurant specializing in German food. He expects to receive 43,470 per year for the next eight years. His cost of capital is 5.5 percent. Compute the internal rate of return. Did Sterling make a good decision?
for part a, Repeat the analysis for discount rates of 6.2%, 1.1% and 17.8%, respectively and then solve part b and c, thanks
3
Your boss has just presented you with the summary in the accompanying table of projected costs and annual receipts for a new product line. He asks you to calculate the IRR for this investment opportunity. What would you present to your boss, and how would you explain the results of your analysis? (It is widely known that the boss likes to see graphs of PW versus interest rate for this type of problem.) The company’s MARR is 10% per year.
A new garbage truck can be purchased for $64,000. Its expected useful life is six years at which time its market value will be zero. Annual receipts is expected to be $20,000 with expenses of $2,000 per year over the six-year study period. The company's MARR is 18%. a. What is the ROI? b. Determine if this is a good investment using Net Present Worth(NPW) method. c. What is its Net Annual Worth? d. Using IRR method, is this investment acceptable?
A fast food restaurant feels they could increase their profits by introducing ice cream. The equipment will cost $250,000 and has expected profits of $125,000 in the 1st year, $100,000 in the 2nd year, and $60,000 in the 3rd year. It could sell the equipment for scrap at the end of 3 years for $10,000. a. If the company's required rate of return is 12% compounded annually, what is the Net Present Value (NPV) of this investment? b. Is the investment worth while?
Assume that a company is considering purchasing a machine for $50,500 that will have a five-year useful life and no salvage value. The machine will lower operating costs by $17,000 per year. The company's required rate of return is 18%. The profitability index for this investment is closest to: Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using the tables provided. Multiple Choice C O 0.95. 1.01. 1.05. 1.11.
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