A company is wondering if a new 8-year project (with the relevant information below) is worth it.
Question:
A company is wondering if a new 8-year project (with the relevant information below) is worth it. Each unit can be sold for = $44.50 Each unit can be produced for = $11.20 Additional total fixed costs (i.e., regardless of # of units produced) per year = $494,000 Production equipment can be bought for = $968,000 Depreciation of the production equipment, per year = $121,000 Company's income tax rate = 25% In addition, the discount rate appropriate for the project's level of risk is 17 percent per year. The production equipment follows straight-line depreciation method over the project's 8-year life, and will be worthless at the end of the project.
a. In order to break even in the "accounting" sense, the company would need to sell ___ units each year. (Do not round your intermediate calculations and only round your final answer to 2 decimal places, e.g., 32.16.)
b. In order to break even in the "financial" sense, the company would need to sell ___ units each year. (Do not round your intermediate calculations and only round your final answer to 2 decimal places, e.g., 32.16.)
Corporate Finance A Focused Approach
ISBN: 978-1305637108
6th edition
Authors: Michael C. Ehrhardt, Eugene F. Brigham