Question
Asked Mar 1, 2020
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Ayden’s Toys, Inc., just purchased a $475,000 machine to produce toy cars. The machine will be fully depreciated by the straight-line method over its 6-year economic life. Each toy sells for $19. The variable cost per toy is $6 and the firm incurs fixed costs of $335,000 per year. The corporate tax rate for the company is 23 percent. The appropriate discount rate is 11 percent. What is the financial break-even point for the project?

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Expert Answer

Step 1

With the given values, we can calculate the financial break-even point as follows: 

 

Step 2

The formula to calculate straight line depreciation is:

Finance homework question answer, step 2, image 1

Substituting the values, we get the value of depreciation as:

Finance homework question answer, step 2, image 2

 

Step 3

We can calculate the payments using excel as:

Finance homework question answer, step 3, image 1

Finance homework question answer, step 3, image 2

Hence, the payment amount is $112,278.87

...

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