4. Financial Break-Even Ayden's Toys, Inc., purchased a $435,000 machine to produce toy cars. The machine will be fully depreciated by the straight-line method over its 5-year economic life. Each toy sells for $16. The variable cost per toy is $5 and the firm incurs fixed costs of $295,000 per year. The corporate tax rate for the company is 24 percent. The appropriate discount rate is 12 percent. What is the financial break-even point for the project? 5. Option to Wait Your company is deciding whether to invest in a new machine. The new machine will increase cash flow by $435,000 per year. You believe the technology used in the machine has a 10-year life; in other words, no matter when you purchase the machine, it will be obsolete 10 years from today. The machine is currently priced at $2.8 million. The cost of the machine will decline by $215,000 per year until it reaches $2.155 million, where it will remain. If your required return is 9 percent, should you purchase the machine? If so, when should you purchase it?
4. Financial Break-Even Ayden's Toys, Inc., purchased a $435,000 machine to produce toy cars. The machine will be fully depreciated by the straight-line method over its 5-year economic life. Each toy sells for $16. The variable cost per toy is $5 and the firm incurs fixed costs of $295,000 per year. The corporate tax rate for the company is 24 percent. The appropriate discount rate is 12 percent. What is the financial break-even point for the project? 5. Option to Wait Your company is deciding whether to invest in a new machine. The new machine will increase cash flow by $435,000 per year. You believe the technology used in the machine has a 10-year life; in other words, no matter when you purchase the machine, it will be obsolete 10 years from today. The machine is currently priced at $2.8 million. The cost of the machine will decline by $215,000 per year until it reaches $2.155 million, where it will remain. If your required return is 9 percent, should you purchase the machine? If so, when should you purchase it?
Financial Accounting Intro Concepts Meth/Uses
14th Edition
ISBN:9781285595047
Author:Weil
Publisher:Weil
Chapter12: Liabilities: Off-balance-sheet Financing, Retirement Benefits, And Income Taxes
Section: Chapter Questions
Problem 27E
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Transcribed Image Text:4. Financial Break-Even Ayden's Toys, Inc., purchased a $435,000 machine to produce toy cars. The machine will be fully depreciated by
the straight-line method over its 5-year economic life. Each toy sells for $16. The variable cost per toy is $5 and the firm incurs fixed
costs of $295,000 per year. The corporate tax rate for the company is 24 percent. The appropriate discount rate is 12 percent. What is
the financial break-even point for the project?
5. Option to Wait Your company is deciding whether to invest in a new machine. The new machine will increase cash flow by $435,000
per year. You believe the technology used in the machine has a 10-year life; in other words, no matter when you purchase the machine,
it will be obsolete 10 years from today. The machine is currently priced at $2.8 million. The cost of the machine will decline by
$215,000 per year until it reaches $2.155 million, where it will remain. If your required return is 9 percent, should you purchase the
machine? If so, when should you purchase it?
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