16. NPV Break-Even. A financial analyst has computed both accounting and NPV break-even sales levels for a
Question:
16. NPV Break-Even. A financial analyst has computed both accounting and NPV break-even sales levels for a project using straight-line depreciation over a 6-year period. The project manager wants to know what will happen to these estimates if the firm uses MACRS deprecia- tion instead. The capital investment will be in a 5-year recovery period class under MACRS rules (see Table 9-4). The firm is in a 35% tax bracket. (LO2)
a. What (qualitatively) will happen to the accounting break-even level of sales in the first years of the project?
b. What (qualitatively) will happen to NPV break-even level of sales?
c. If you were advising the analyst, would the answer to
(a) or
(b) be important to you? Specifically, would you say that the switch to MACRS makes the project more or less attractive?
Step by Step Answer:
Fundamentals Of Corporate Finance
ISBN: 9780073382302
6th Edition
Authors: Richard A Brealey, Stewart C Myers, Alan J Marcus