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A company is considering the opportunity to invest into a new 12 -year project: manufacturing and selling remote-controlled tree houses. $600,000 would need to be
A company is considering the opportunity to invest into a new 12 -year project: manufacturing and selling remote-controlled tree houses. $600,000 would need to be spent upfront to cover the cost of buying the necessary production equipment, which will be depreciating at a constant rate each year over its 12-year economic life. The equipment will be worthless when the project ends. Additional information regarding the tree houses production: - $2,400 in per-tree-house costs, a.k.a. variable cost of production - $35,000 in total (i.e., not per tree house) annual fixed production costs - Each sold tree house is estimated to bring the company $3,000. The tax rate of 30% applies to the company's taxable income each year. This project requires a 10% annual rate of return. Answer the following: If the company manufactures and sells tree houses each year, then it will break even in the "financial" sense. However, if the cost of buying the necessary production equipment turns out , the required annual break-even number of sold tree houses would need to be higher
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