Question
This problem concerns the effect of taxes on the various break-even measures. Consider a project to supply Detroit with 25,000 tons of machine screws annually
This problem concerns the effect of taxes on the various break-even measures. Consider a project to supply Detroit with 25,000 tons of machine screws annually for automobile production. You will need an initial $2,200,000 investment in threading equipment to get the project started; the project will last for five years. The accounting department estimates that annual fixed costs will be $700,000 and that variable costs should be $400 per ton; accounting will depreciate the initial fixed asset investment straight-line to zero over the five-year project life. It also estimates a salvage value of $300,000 after dismantling costs. The marketing department estimates that the automakers will let the contract at a selling price of $480 per ton. The engineering department estimates you will need an initial net working capital investment of $220,000. You require a return of 15 percent and face a marginal tax rate of 38 percent on this project. |
Calculate the accounting, cash, and financial break-even quantities. (Do not round intermediate calculations and round your final answers to the nearest whole number, e.g., 32.) |
Cash break-even | ??? | |
Accounting break-even | ??? | |
Financial break-even | ??? | |
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