Break-even calculations are most often concerned with the effect of a shortfall in sales, but they could equally well focus on any other component of cash flow. Dog Days is considering a proposal to produce and market a caviar-flavored dog food. It will involve an initial investment of $90,000 that can be depreciated for tax straight-line over 10 years. In each of years 1-10, the project is forecast to produce sales of $100,000 and to incur variable costs of 50% of sales and fixed costs of $30,000. The corporate tax rate is 30%, and the cost of capital is 10%.

a.Calculate the NPV and accounting break-even levels of fixed costs.(Do not round intermediate calculations. Round your answers to 2 decimal places.)

FC at NPV breakeven$

FC at accounting breakeven$

b.Suppose that you are worried that the corporate tax rate will be increased immediately after you commit to the project. Calculate the break-even rate of tax.(Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

Break-even tax rate%

c.How would a rise in the tax rate affect the accounting break-even point?

No effect, Decrease, or Increase?