You are considering investing in a company that cultivates abalone for sale to local restaurants. Use the

Question:

You are considering investing in a company that cultivates abalone for sale to local restaurants. Use the following information:

Sales price per abalone ............. = $ 35

Variable costs per abalone ........ = $ 6.10

Fixed costs per year ................... = $375,000

Depreciation per year ............... = $120,000

Tax rate ...................................... = 35%

The discount rate for the company is 15 percent, the initial investment in equipment is $840,000, and the project’s economic life is seven years. Assume the equipment is depreciated on a straight-line basis over the project’s life.

a. What is the accounting break-even level for the project?

b. What is the financial break-even level for the project?

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...