Question

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

sale price per abalone= $43.70

variable cost per abalone= $10.80

fixed cost per year = $462,000

depreciation per year= $137,000

tax rate= 22%

The discount rate for the conpany id 14 percent, the initial investment in equipment is $959,000, and the project's economic life is 7 years. Assume the equipment is depreciated on a straight-line basis over the projects life and has no salvage value.

what is the accounting break-even level for the project?

what is the financial break-even level for the project?

Answer 1

Sales price per abalone	=	43.70
Variable costs per abalone	=	10.80
Fixed costs per year	=	462000.00
Depreciation per year	=	137000.00
Tax rate	=	22%
the initial investment in equipment is	959000
discount rate for the company is	14%
the project’s economic life is	7
1. accounting break-even level for the project
(462000+137000)/(43.7-10.8)
18206.68693
2 financial break-even level for the project
((959000*14%/(1-1/1.14^7)-137000)/(1-22%)+462000+137000)/(43.7-10.8)
21582.55357