You are considering investing in a company that cultivates abalone to sell to local restaurants. Use the
Question:
You are considering investing in a company that cultivates abalone to sell 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?
b. What is the financial break-even level for the project?
Salvage ValueSalvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important... Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...
Step by Step Answer:
a The accounting breakeven is the aftertax sum of the fixed costs and depreciation charge divided by ...View the full answer
Corporate Finance
ISBN: 978-1259918940
12th edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Bradford Jordan
