10.3 With the lower initial investment, depreciation is also lower; it now equals $417,000 per year. Cash flow is now as follows:

Break-even occurs when PV (cash inflows) = investment 7.536(1125x sales-$1.033 million) = $5 million Sales $15.08 million

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1. Variable costs 2. Fixed costs 3. Depreciation 4. Pretax profit 5. Tax (at 40%) 81.25% of sales $2 million $417,000 (.1875 x sales) - $2.417 million .4 X (.1875 x sales - $2.417 million) 6. Profit after tax .6 x (.1875 x sales 7. Cash flow (3+6) $2.417 million) .6 (.1875 x sales - $2.417 million) + $417,000 =.1125 x sales - $1.033 million