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Question
Submitted by jehchr on Fri, 2012-04-13 00:47
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Modern Artifacts can produce keepsakes that will be sold for $70 each. Nondepreciation fixed costs are $2,000 per year and...

Modern Artifacts can produce keepsakes that will be sold for $70 each. Nondepreciation fixed costs are $2,000 per year and variable costs are $35 per unit.

a.

If the project requires an initial investment of $4,000 and is expected to last for 5 years and the firm pays no taxes. The initial investment will be depreciated straight-line over 5 years to a final value of zero, and the discount rate is 10%. What are the accounting and NPV break-even levels of sales? (Do not round intermediate calculations. Round your answers to the nearest whole number.)

Accounting break-even levels of sales units

NPV break-even levels of sales units

--------------------------------------------------------------------------------

b.

What will be the accounting and NPV break-even levels of sales, if the firm's tax rate is 40%? (Do not round intermediate calculations. Round your answers to the nearest whole number.)

Accounting break-even levels of sales units

NPV break-even levels of sales

Answer
Submitted by Asma on Fri, 2012-04-13 14:01
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Answer rating (rated one time)

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Updated solution

body preview (9 words)

Please find xxxxxxxx file for xxxxxxx and xxxxxxx solution.

file1.doc preview (217 words)

Variable xxxx = xxx of sales revenue

Therefore, additional profit per $1 of additional sales = xxxxxx

Depreciation xxxxxxx x xxxxxxxx = xxxx xxx year

xxxxxxxxxx level xx sales x

xx

Fixed xxxxxxx including depreciation

=

xxxxxx x xxxx

 x $5600 per year

xxxxxxxxxx xxxxxx from xxxx additional dollar xx sales

0.50

xx

This xxxxx xxxxx xxxxxxxxxxx to a production xxxxx xx $5600/$70 per unit = xx xxxxxx

To find the xxx break-even level of xxxxxx xxxxx xxxxxxxxx xxxx flow.

xxxx xx taxes: xxxx xxxx = xxxxx × xxxxxx − $2,000

x

xxx xxxx xxxxxx xxxxxxx xxxxxx xxx

xx

xxxxxxxxxx xx project NPV equals zero:

           xxxxxxx xxxxxx − investment x x

           [3.79079 × xxxxx × xxxxxx − $2,000] − $4,000 x 0

           (1.895395 × xxxxxx − xxxxxxx − xxxxxx = x  xxxxx x $6110

 

This xxxxx xxxxx xxxxxxxxxxx xx a production xxxxx xx $9,524/$70 = almost xx xxxxxx

xxxxx

xxx xxxxx are xxx of profits. Accounting xxxxxxxxxx xx unchanged xxxxx taxes xxx xxxx xxxx

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Answer
Submitted by shahimermaid on Fri, 2012-04-13 02:03
teacher rated 386 times
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the answer is in attached file

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file1.docx preview (509 words)

Modern xxxxxxxxx can produce xxxxxxxxx that xxxx xx sold for xxx xxxxx xxx xxxxxxxxxxxx xxxxx costs are xxxxxx xxx xxxx xxx xxxxxxxx costs xxx xxx xxx unit.

a.

If the xxxxxxx xxxxxxxx xx xxxxxxx xxxxxxxxxx xx xxxxxx xxx is expected xx last for x xxxxx and xxx firm xxxx no xxxxxx xxx initial investment will xx xxxxxxxxxxx xxxxxxxxxxxxx xxxx 5 xxxxx to x final value xx xxxxx xxx the xxxxxxxx rate xx xxxx xxxx xxx xxx xxxxxxxxxx and xxx break-even levels xx xxxxxx (Do not round intermediate calculations. xxxxx your answers to xxx nearest whole xxxxxxxx

xxxxxxxxxxxxx

Year x

xxxxx

1

xxxxx

xxx

xxxxxx

Year2

xxx

0.8264

Year 3

800

xxxxxx

xxxx x

800

0.6830

Year 5

xxx

xxxxxx

xxxxxxxxxx break-even xxxxxx xx xxxxx

xxx xxxxxxxxxx level xx sales xx the sales xxxxx xx xxxxx xxxx x 0 ;

xx xxxxx words:

sales break-even point x level of xxxxx necessary xx cover xxxxxxxxx costs.

EBIT = Revenues x Variable costs - Fixed costs - xxxxxxxxxxxx = 0 
xxxxxxxx - Variable costs x Fixed

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