James, Inc., has purchased a brand new machine to produce its High Flight line of shoes....

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Finance

James, Inc., has purchased a brand new machine to produce itsHigh Flight line of shoes. The machine has an economic life of 6years. The depreciation schedule for the machine is straight-linewith no salvage value. The machine costs $636,000. The sales priceper pair of shoes is $94, while the variable cost is $42. Fixedcosts of $330,000 per year are attributed to the machine. Thecorporate tax rate is 24 percent and the appropriate discount rateis 9 percent.

What is the financial break-even point?

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Solution The financial breakeven point for the machine is the point where its present value of cash inflows is equal to the Initial Investment in the machine Thus it is that level of sales where the after tax discounted cash inflows is equal to the Initial Investment in the machine Calculation of Annual After cash Inflows The formula for calculating the annual after tax cash Inflow is Sales Variable See Answer

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James, Inc., has purchased a brand new machine to produce itsHigh Flight line of shoes. The machine has an economic life of 6years. The depreciation schedule for the machine is straight-linewith no salvage value. The machine costs $636,000. The sales priceper pair of shoes is $94, while the variable cost is $42. Fixedcosts of $330,000 per year are attributed to the machine. Thecorporate tax rate is 24 percent and the appropriate discount rateis 9 percent. What is the financial break-even point?