Wettway Sailboat Corporation is considering whether to launch its new Margo-class sailboat. The selling price will be
Question:
Wettway Sailboat Corporation is considering whether to launch its new Margo-class sailboat. The selling price will be $48,000 per boat. The variable costs will be about half that, or $27,000 per boat, and fixed costs will be $535,000 per year.
The total investment needed to undertake the project is $3,800,000. This amount will be depreciated straight-line to zero over the 6-year life of the equipment. The salvage value is zero, and there are no working capital consequences. Wettway has a required return of 18 percent on new projects.
Q= (FC + (OCF-Tc x D))/P-v
Use the above expression to find the cash, accounting, and financial break-even points for Wettway Sailboat. Assume a tax rate of 23 percent.
Cash break-even(The answer is not 25.48) :
Financial break-even (The answer is not 78.12) :