GDS Co. has purchased a brand new machine to produce its High Flight line of shoes. The

Question:

GDS Co. has purchased a brand new machine to produce its High Flight line of shoes. The machine has an economic life of six years. The depreciation schedule for the machine is straight-line with no salvage value. The machine costs $609,000. The sales price per pair of shoes is $51, while the variable cost is $18. Fixed costs of $360,000 per year are attributed to the machine.

Assume that the corporate tax rate is 34 percent and the appropriate discount rate is 12 percent. What is the financial break-even point?

Salvage Value
Salvage 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...