Martinez, Inc., has purchased a brand new machine to produce its High Flight line of shoes. The
Question:
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 shoes 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?
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The financial breakeven point Sales price per pair of shoes Sales price per pair ...View the full answer
Corporate Finance
ISBN: 9781260772388
13th Edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe
Related Video
In accounting terms, depreciation is defined as the reduction of the recorded cost of a fixed asset in a systematic manner until the value of the asset becomes zero or negligible. An example of fixed assets are buildings, furniture, office equipment, machinery, etc. The land is the only exception that cannot be depreciated as the value of land appreciates with time. Depreciation allows a portion of the cost of a fixed asset to be the revenue generated by the fixed asset. This is mandatory under the matching principle as revenues are recorded with their associated expenses in the accounting period when the asset is in use. This helps in getting a complete picture of the revenue
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