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
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
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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 |
| 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.) |
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