Question

Please answer the whole question not partial.

Mod Inc. sells parts for $150 each. Fixed costs are $2,500 per year and variable costs are $100 per unit. If the initial investment is $15,000 and is expected to last for 10 years and the firm pays 30% taxes, what is the accounting and economic break-even level of sales respectively? The initial investment will be depreciated straight-line over 10 years to a final value of zero, and the discount rate is 10%. PLEASE USE EXCEL -SHOW FORMULAS & WORK. THANK YOU!

Answer 1

Solution:
Initial Investment = $15,000
Life of Investment = 10 years.
Depreciation on investment   = $15,000/10 = $1,500 per year.
Contrybution Per unit = Sales price - Variabale cost = $150 - $100 = $50
Accounting Breakeven = (Fixed cost + Depreciation) / contrybution Per unit
		=   ($2,500 + $1,500)/$50
		=     $80
Operating Cash flows = Intial Invetament / PVAF
	=   $15,000 / (10% , 10 years )
	= $ 15,000 / 6.1446
	= $2,441.17
Operating Cash Flows = (Economic Breakeven * contrybution per unit - Fixed cost * (1 - Tax rate)+
		Tax rate * Depreciation)
	$2,441.17 = (   X * $50 - $2,500 *(1 - 0.30) + 0.30 *$1,500 )
	$2,441.17 =   ( X   * $50 - $2,500 * 0.70 + $450)
	$1,991.17 =    (X *$50 - $2,500 )*0.70
	$2,844.53 = (X * $50 - $2,500)
	$5,344.53 = (X * $50)
	Economic Breakeven = $5,344.53 / $50 = $106.89
	Please upvote , if found the answer useful.
	For any clarification, Feel free to comment.