Question

You are considering investing in a company that cultivates abalone for sale to local restaurants. Use the following information:

Sales price per abalone	=	$35.20
Variable costs per abalone	=	$6.30
Fixed costs per year	=	$377,000
Depreciation per year	=	$122,000
Tax rate	=	34%

The discount rate for the company is 13 percent, the initial investment in equipment is $732,000, and the project’s economic life is six years. Assume the equipment is depreciated on a straight-line basis over the project’s life.

a.	What is the accounting break-even level for the project? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)

Accounting break-even level

units

b.	What is the financial break-even level for the project? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)

Financial break-even level

units

Answer 1