FINA6301 HWK Problems 13th Edition Chapter 7 Session 7 9. Financial Break-Even Analysis You are considering investing in a company that cultivates abalone to sell to local restaurants. Use the following information: Sales price per abalone =45 Variable costs per abalone = 10.95 Fixed costs per year = $475,000 Depreciation per year = $135,000 Tax rate =21% The discount rate for the company is 15 percent, the initial investment in equipment is $945,000, 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? 10. Financial Break-Even Martinez, Inc., has purchased a brand new machine to produce its High Flight line of shoes. The machine has an economic life of five years. The depreciation schedule for the machine is straight-line with no salvage value. The machine costs $480,000. The sales price per pair of shoas is 71, while the variable cost is $28. Fixed costs of $295,000 per year are attributed to the machine. The corporate tax rate is 21 percent and the appropriate discount rate is 8 percent. What is the financial break- even point? 13. Project Analysis You are considering a new product launch. The project will cost $1.675 million, have a four-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 195 units per year; price per unit will be $16,300; variable cost per unit will be $8,400; and fixed costs will be $550,000 per year. The required return on the project is 12 parcent and the relevant tax rate is 21 pe a. Based on your experience, you think the unit sales, variable cost, and fixed cost projections g:'ven\" here are probably accurate to within 10 percent. What are the upper and lower bounds for these projections? What is the base-case NPV? What are the besl-case and worsl-case scenarios? b. Evaluate the sensitivity of your base-case NPV to changes in fixed costs. . What is the accounting break-even level of output for this project? In Part b) of problem 13, choose another level of fixed costs of $561,000 to do the sensitivity analysis. See the HW hints posted for more information