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ABC company can produce handbags that will be sold for $90 each. Non-depreciation fixed costs are $1000 per year, and variable costs are $60 per
ABC company can produce handbags that will be sold for $90 each. Non-depreciation fixed costs are $1000
per year, and variable costs are $60 per unit. The initial investment of $3000 will be depreciated straight-line over its useful life of 5 years to a final value of zero, and the discount rate is 10%.
a) What is the accounting break-even level of sales if the firm pays no taxes?
b) What is the NPV break-even level of sales if the firm pays no taxes?
c) What is the accounting break-even level of sales if the firm's tax rate is 35%?
d) What is the NPV break-even level of sales if the firm's tax rate is 35%?
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Case Studies in Finance Managing for Corporate Value Creation
Authors: Robert F. Bruner, Kenneth Eades, Michael Schill
7th edition
007786171X, 77861711, 978-0077861711
