Your buddy comes to you with a sure-fire way to make some quick money and help pay

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Your buddy comes to you with a sure-fire way to make some quick money and help pay off your student loans. His idea is to sell T-shirts with the words "I get" on them. "You get it?" He says, "You see all those bumper stickers and T-shirts that say 'got milk' or 'got surf.' So this says, 'I get.' It's funny! All we have to do is buy a used silk screen press for $6,500 and we are in business!" Assume there are no fixed costs, and you depreciate the $6,500 in the first period. Taxes are 30 percent.

a. What is the accounting break-even point if each shirt costs $4.80 to make and you can sell them for $11 apiece?

Now assume one year has passed and you have sold 5,000 shirts! You find out that the

Dairy Farmers of America have copyrighted the "got milk" slogan and are requiring you to pay $20,000 to continue operations. You expect this craze will last for another three years and that your discount rate is 12 percent.

b. What is the financial break-even point for your enterprise now?

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...
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Corporate Finance

ISBN: 978-0077861759

11th edition

Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Bradford Jordan

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