2 QUESTIONS - They are complete

Holmes Inc. purchased computer equipment two years ago at a total cost of $1,000,000. These computers could be sold today for $300,000. If these computers are sold in five years, they will be worth $50,000. The CCA rate for these computers is 30%.

The company is now considering whether it should replace these computers with newer and more powerful ones. The estimated total purchase cost of the new computers is $1.5 million. These computers can be sold for $300,000 in five years, and their CCA rate remains at 30%. The company expects to obtain before-tax cost savings of $300,000 per year from these new computers.

The company's marginal tax rate is 35%, and its required rate of return on new equipment is 15%. Should the company replace the computer equipment?

XYZ Co. is evaluating whether to invest in a project with the following information:

Project cost = $950,000

Project life = five years

Projected number of units sold per year = 10,000

Projected price per unit = $200

Projected variable cost per unit = 150

Fixed costs per year = $150,000

Required rate of return = 15%

Marginal tax rate = 35%

Assume straight-line depreciation to zero over five years, and ignore the half-year rule for accounting for depreciation.

a.Calculate the cash break-even sales quantity for this project.

b.Calculate the accounting break-even sales quantity for this project.

c.Calculate the financial break-even sales quantity for this project.

d. Calculate the Degree of Operating Leverage (DOL) at the cash break-even, accounting break-even, and financial break-even sales quantities.