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

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Finance

You are considering investing in a company that cultivatesabalone for sale to local restaurants. Use the followinginformation: Sales price per abalone = $44.10 Variable costs perabalone = $11.00 Fixed costs per year = $478,000 Depreciation peryear = $117,000 Tax rate = 21% The discount rate for the company is13 percent, the initial investment in equipment is $936,000, andthe project’s economic life is 8 years. Assume the equipment isdepreciated on a straight-line basis over the project’s life andhas no salvage value. a. What is the accounting break-even levelfor the project? (Do not round intermediate calculations and roundyour answer to 2 decimal places, e.g., 32.16.) b. What is thefinancial break-even level for the project? (Do not roundintermediate calculations and round your answer to 2 decimalplaces, e.g., 32.16.)

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Solution a Calculation of Accounting Break even level for the project The formula for calculating the Accounting Break even level is Fixed costs per year Depreciation per year Contribution per unit Where Contribution per unit Sales price per abalone Variable costs per abalone As per the information given in the question we have Fixed costs per year 478000 Depreciation per year 117000 Sales price per abalone 4410 Variable costs per abalone 1100 Thus Contribution per unit 4410 1100 3310 Applying the above information in See Answer

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