Question

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

Sales price per abalone	=	$43.60
Variable costs per abalone	=	$10.75
Fixed costs per year	=	$458,000
Depreciation per year	=	$136,000
Tax rate	=	21%

The discount rate for the company is 13 percent, the initial investment in equipment is $952,000, and the project’s economic life is 7 years. Assume the equipment is depreciated on a straight-line basis over the project’s life and has no salvage value.

a.	What is the accounting break-even level for the project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

b.	What is the financial break-even level for the project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Answer 1