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A firm initiates a 4 year project with an investment of $50,000. Assume that this initial...

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Finance

A firm initiates a 4 year project with an investment of $50,000.Assume that this initial investment is depreciated using thestraight line method. There is no salvage value at the end of theproject. Under this project a certain product is produced and sold.Key financial information is provided below:

Price/unit

10

Direct Expenses/unit

2

SGA (excl. Depreciation)

7,500

Taxes

30%

  1. What is the NI break-even?
  1. What is the NPV break-even? Assume that r = 9%.
  2. Is the NI BE conservative or aggressive compared to the NPV BE?Why? (1-2 sentences)

Answer & Explanation Solved by verified expert
3.6 Ratings (536 Votes)
Solution for aLet the total number units sold be xnet income sales direct expenses depreciation SGA taxesSales number of units sold price per unit Hence sales x10 10xdirect expenses number of units sold direct expenses perunit Hence direct expenses per unit x2 2xdepreciation using straight line Investment salvage valuenumber of years 50000 04 12500taxes tax rate sales direct expenses depreciation SGA 03 10x 2x 12500 7500Net income at break even 0 sales direct expenses depreciation SGA taxeshence sales direct    See Answer
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A firm initiates a 4 year project with an investment of $50,000.Assume that this initial investment is depreciated using thestraight line method. There is no salvage value at the end of theproject. Under this project a certain product is produced and sold.Key financial information is provided below:Price/unit10Direct Expenses/unit2SGA (excl. Depreciation)7,500Taxes30%What is the NI break-even?What is the NPV break-even? Assume that r = 9%.Is the NI BE conservative or aggressive compared to the NPV BE?Why? (1-2 sentences)

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