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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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Please find attached xxxx xxx xxxxxxx and xxxxxxx solution.

file1.doc preview (262 words)

xxx

xxxxxxxx cost x 50% of sales revenue

xxxxxxxxxx additional profit xxx xx of xxxxxxxxxx xxxxx x xxxxxx

xxxxxxxxxxxx expense = $4,000/5 x $800 xxx year

xxxxxxxxxx xxxxx of sales x

xxxxxx

Fixed costing including xxxxxxxxxxxx

=

$2,000 x $800

 = xxxxx xxx year

Additional xxxxxx from each additional dollar xx sales

xxxx

xxx

xxxx xxxxx level corresponds to x production level of xxxxxxxxx per unit = xx xxxxxx

xx xxxx xxx NPV xxxxxxxxxx level xx sales, first xxxxxxxxx xxxx xxxxx

xxxx no xxxxxx Cash flow x (0.50 × xxxxxx − $2,000

x

The xxxx 5-year annuity factor xxx

xxx

xxxxxxxxxx xx xxxxxxx NPV xxxxxx zero:

           xxxxxxx flows) − investment x 0

           [3.79079 × (0.50 × xxxxxx − xxxxxxx − xxxxxx x x

           xxxxxxxxx × xxxxxx − xxxxxxx − xxxxxx

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Answer
Submitted by shahimermaid on Fri, 2012-04-13 02:03
teacher rated 376 times
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the answer is in attached file

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xxxxxx Artifacts xxx produce xxxxxxxxx xxxx will xx sold for $70 each. Non depreciation fixed costs are xxxxxx xxx year xxx variable xxxxx xxx xxx xxx unit.

xx

xx xxx xxxxxxx xxxxxxxx xx initial investment xx $4,000 and xx xxxxxxxx xx last xxx x years and the xxxx xxxx no xxxxxx xxx initial investment will xx xxxxxxxxxxx straight-line xxxx x xxxxx to a xxxxx xxxxx of xxxxx xxx xxx xxxxxxxx xxxx is xxxx What xxx the accounting xxx xxx break-even levels of xxxxxx (Do xxx round xxxxxxxxxxxx xxxxxxxxxxxxx Round xxxx xxxxxxx to xxx xxxxxxx xxxxx number.)

xxxxxxxxxxxx

xxxx 0

xxxxx

1

Year1

xxx

0.9091

xxxxx

800

xxxxxx

Year x

800

xxxxxx

Year 4

800

0.6830

Year x

800

xxxxxx

Accounting xxxxxxxxxx xxxxxx of sales

xxx xxxxxxxxxx xxxxx xx sales xx the xxxxx point at

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