Urgent it is Break-even calculations are most oftenconcerned with the effect of a shortfall in sales,but they could equally well focus on any othercomponent of cash flow. Dog Days is consideringa proposal to produce and market a caviar-flavored dog food. It will involve an initialinvestment of $90,000 that can be depreciatedfor tax straight-line over 10 years. In each of years1-10, the project is forecast to produce sales of$100,000 and to incur variable costs of 50% ofsales and fixed costs of $30,000. The corporatetax rate is 30%, and the cost of capital is 10%.a. Calculate the NPV and accounting break-evenlevels of fixed costs. (Do not round intermediatecalculations. Round your answers to 2 decimalplaces.)FC at NPV breakevenFC at accounting breakevenb. Suppose that you are worried that thecorporate tax rate will be increased immediatelyafter you commit to the project. Calculate thebreak-even rate of tax. (Do not roundintermediate calculations. Enter your answer as apercent rounded to 2 decimal places.)Break-even tax ratec. How would a rise in the tax rate affect theaccounting break-even point?No effectDecreaseIncrease

Answered: Image /qna-images/answer/879ccbe2-daf9-446a-8b94-9145dcb24d1d.jpg

Answered: NPV | bartleby

Business

Accounting

NPV

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 9E: Each of the following scenarios is independent. All cash flows are after-tax cash flows. Required:...

See similar textbooks

Related questions

Q: anga manufacturing company's Management Accountant wants to determine the profit for the company. ...

A: The break even sales are the sales where business earns no profit no loss during the period.

Q: The carrying value of equipment was R400 000 on 01 March 2019, the start of the financial year, and ...

A: Depreciation is the allocation of cost of asset over the useful life of asset.

Q: 30,000 Account payable EXERCISE 2 Paper spa is a company that produces papers and recycles cardboard...

A: The ratio analysis helps to analyze the financial statements of the business.

Q: 2. Profit To produce 1 unit of a new product, a company determines that the cost for material is $2....

A: Note: We’ll answer the first question since the exact one wasn’t specified. Please submit a new ques...

Q: A Company makes plastic dog carriers. The manufacturing process is highly automated and the machine ...

A: The expenses that are incurred during the production process or manufacturing process of th...

Q: Ponderosa, Inc., produces wiring harness assemblies used in the production of semi-trailer trucks. T...

A: A budget is a forecast of revenue and expenses for a certain future period of time that is generally...

Q: On January 31, 2015, Village Bank had 500,000 shares of $2 par value common stock outstanding On tha...

A: Earnings per share: =Net income / Common stock outstanding

Q: Overtime produces and sells a mantel clock for $200 per unit. In 2020, 41,000 clocks were produced a...

A: The cost per unit under absorption costing is calculated by adding the direct material, direct labor...

Q: Mr. Chua in his plan for expansion by putting up a branch of his grocery near Cubao, has decided to ...

A: If Mr. Chua's relations turns sour in the future, then this leads to dissolution of business in the ...

Q: The information which follows, was obtained from the accounting records of Vista Traders on 29 Febru...

A: This question is deals with the calculation of cost of sales. Lets first understand the meaning of c...

Q: ABC Co. produces 3 products with the following production and cost information: Model X Model Y Mode...

A: Overhead Rate = Total OverheadsTotal Estimated Cost Driver

Q: Term of a Note Calculate total time in days for the following notes. (Assume there are 28 days in F...

A: A note is a financial security that obligates a borrower to pay a borrowing within a certain time fr...

Q: An account will have a credit balance if the

A: Credit Balance of an Account: As the name implies, a debit entry indicates a transfer of money into ...

Q: Hurd Inc. prepays rent every 3 months on March 1, June 1, September 1, and December 1. Rent for the ...

A: Rent that has been paid in advance of the rental term to which it belongs is known as prepaid rent. ...

Q: On January 1, 2019, the Philippines Inc. issued P3,000,000, 12% promissory note for an equipment pur...

A: Value of Equipment = Present value of principal + Present value of interest payments where, Present ...

Q: Question 3 You were recently employed as the Financial Controller at Covid Free Ltd. You were provid...

A: Sales ledger Control Account is a Set of Debtors account in which all Credit sales and Credit transa...

Q: Raphael Ltd is a small engineering business that has annual credit sales revenue of £2.4 million. In...

A: The question is based on the concept of Financial Management.

Q: August 1, 2020 - Opened an account with PNB amounting to P400,000. August 2, 2020 – Bought Laundry E...

A: Journal entries are the first record of the financial transactions.

Q: _1. On 2020, an entity made cash sales of P3,000,000. It paid P1,000,000 in expenses and owed P300,0...

A: Hi student Since there are multiple questions, we will answer only first question.

Q: Discuss the need to include the leverage ratio and off-balance sheet assets in Basel III

A: Leverage ratio in Basel III was introduce to reduce the risk of such periods of deleveraging in futu...

Q: Ponderosa, Inc., produces wiring harness assemblies used in the production of semi-trailer trucks. T...

A: The budget is prepared to estimate the expenses and revenue of the upcoming accounting year and to...

Q: consider the following accounts and determine if the account is a current liability, a noncurrent li...

A: The balance sheet is the statement of financial position of the business.

Q: Auditors often use the ________ to determine the estimated population exception rate. current year...

A: Estimated Population Exception Rate is the exception rate expected to exist in the population undert...

Q: Direct materials used in production totaled P280,000. Direct labor was P375,000 and factory overhead...

A: Conversion costs=Direct labor+Factory overhead=P 375,000+P 180,000=P 555,000

Q: Dolan Products is a small, family-owned audio component manufacturer. Several years ago, the company...

A: It is pertinent to note that Gross Margin = Sales Revenue - Cost of goods sold Cost of goods sold i...

Q: Uranus sells wires and it reports the following information from its sales budget: Expected Sales am...

A: Sales are the goods and services made by the business. It can be cash sales or credit sales.

Q: Question 2 When there is a dividend payable by the subsidiary at acquisition date, under what condit...

A: Pre-acquisition entries are required to keep investments in subsidiaries out of the group of account...

Q: Comparison of Methods of Allocation Duweynie Pottery, Inc., is divided into two operating divisions...

A: The reciprocal method allocates expenditures incurred by service departments to other departments us...

Q: 1.1 Calculate the daily remuneration of W. Rooney using Taylor’s differential piecework system from ...

A: Taylor’s differential piecework system: Taylor, the pioneer of scientific management, invented .the ...

Q: As related to a job order costing system, answer the following short questions: a. What is a job o...

A: The business will be run as per the accounting procedures, and various costing techniques. Based on ...

Q: The following is the

A: Working notes :- Depreci...

Q: Maestro Enterprises deposits the cash received during each day at the end of the day. Maestro deposi...

A: The journal entries are prepared to keep the record of day to day transactions of the business.

Q: Prepare a traditional format income statement for the next quarter. Milden Company Tradit...

A: Income Statement shows all incomes and expenses in the business and at the end it shows net income o...

Q: Required information [The following information applies to the questions displayed below.] Deliberat...

A: This question deals with the preparation of adjusted trial balance. We will first prepare draft tria...

Q: Problem 1- 3 (A Sole Proprietor and Individual with no existing business) On September 1, 2021, Myka...

A: Partnership means where two or more person comes together to do some common business activity and ea...

Q: You are preparing to audit the inventory and warehouse cycle of ABC Manufacturing and have the follo...

A: Inventory refers to the stocks that are held by the company for the resale purpose and to sell in th...

Q: I have a replace or keep question that I am stuck on. I have the answer but don't understand how to ...

A: Make or Buy decision: It is the decision made based cost-benefit analysis. The Decision is for whe...

Q: estimated cost of merchandise inventory destroyed by fire

A: Cost of goods sold = (Sales - Sales Return & Allowance) * (100% - Gross Profit Rate) Given that,...

Q: Which of the following statements relating to internal and external audits is false?* The execution ...

A: Audit is the process of checking and verifying the authenticity of books of account in the business....

Q: July 1, 2020 – Deposited the amount of P50,000 from her savings to her business bank account. luly 2...

A: The ledger accounts will be prepared taking the journal as the source document. The ledger accounts ...

Q: Pioner limited makes four component A, B, C and D for which cost in the forthcoming year are expecte...

A: Make or buy decision is made through incremental analysis If the cost savings and opportunity cost l...

Q: explain one method of depreciation

A: The depreciation expense is charged on fixed assets as reduction in the value of fixed assets with t...

Q: A long-term note payable with no stated rate of interest should be

A: No Interest Bearing Note- These are notes issued at a deep discount having maturity value at its fa...

Q: Sunland Lakes Park is a private camping ground near the Mount Miguel Recreation Area. It has compile...

A: The net income of the entity refers to the amount of revenues that is more than the total expenses o...

Q: 1. List and describe the four corporate characteristics.

A: "Since you have asked multiple questions, we will solve the first question for you". If you want any...

Q: Consider the following income statement and other Infommation: Delat Corporatlon Consolidated Income...

A: Note: Since you have posted a question with multiple sub-parts, we will solve first three subparts f...

Q: financial gain

A: ANSWER- ECONOMIST The Economist online offers authoritative insight and opinion on international ne...

Q: Marble plc has prepared the following flexed production budgets: Production (units) ...

A: Flexible budget means estimates that can be changed as per the production made or as per the demand.

Q: Exploit Media, LLC, has three members: WACS Partners, Elyse O’Reilly, and Encounter Newspaper, LLC. ...

A: Partnership is an agreement between two or more than two persons, by which they invest their capital...

Q: Duweynie Pottery, Inc., is divided into two operating divisions: Pottery and Retail. The company all...

A: Cost accounting is widely used by companies and cost accountant to determine the cost of the product...

Concept explainers

Loanable Funds Theory

The loanable funds theory is a neoclassical theory that determines the interest rate where the demand for loanable investments and supply of loanable funds intersect. To determine the interest rate, this theory employs linear regression and a demand curve. At the equilibrium point, demand for borrowings and demand for the issuance of borrowing funds are inextricably linked. This point of equilibrium should equalize demand and the supply of money available for borrowing.

Question

Urgent it is

Break-even calculations are most often
concerned with the effect of a shortfall in sales,
but they could equally well focus on any other
component of cash flow. Dog Days is considering
a proposal to produce and market a caviar-
flavored dog food. It will involve an initial
investment of $90,000 that can be depreciated
for tax straight-line over 10 years. In each of years
1-10, the project is forecast to produce sales of
$100,000 and to incur variable costs of 50% of
sales and fixed costs of $30,000. The corporate
tax rate is 30%, and the cost of capital is 10%.
a. Calculate the NPV and accounting break-even
levels of fixed costs. (Do not round intermediate
calculations. Round your answers to 2 decimal
places.)
FC at NPV breakeven
FC at accounting breakeven
b. Suppose that you are worried that the
corporate tax rate will be increased immediately
after you commit to the project. Calculate the
break-even rate of tax. (Do not round
intermediate calculations. Enter your answer as a
percent rounded to 2 decimal places.)
Break-even tax rate
c. How would a rise in the tax rate affect the
accounting break-even point?
No effect
Decrease
Increase

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step 3

VIEW

Step by step

Solved in 3 steps with 3 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions

Each of the following scenarios is independent. All cash flows are after-tax cash flows. Required: 1. Patz Corporation is considering the purchase of a computer-aided manufacturing system. The cash benefits will be 800,000 per year. The system costs 4,000,000 and will last eight years. Compute the NPV assuming a discount rate of 10 percent. Should the company buy the new system? 2. Sterling Wetzel has just invested 270,000 in a restaurant specializing in German food. He expects to receive 43,470 per year for the next eight years. His cost of capital is 5.5 percent. Compute the internal rate of return. Did Sterling make a good decision?
Markoff Products is considering two competing projects, but only one will be selected. Project A requires an initial investment of $42,000 and is expected to generate future cash flows of $6,000 for each of the next 50 years. Project B requires an initial investment of $210,000 and will generate $30,000 for each of the next 10 years. If Markoff requires a payback of 8 years or less, which project should it select based on payback periods?
Gina Ripley, president of Dearing Company, is considering the purchase of a computer-aided manufacturing system. The annual net cash benefits and savings associated with the system are described as follows: The system will cost 9,000,000 and last 10 years. The companys cost of capital is 12 percent. Required: 1. Calculate the payback period for the system. Assume that the company has a policy of only accepting projects with a payback of five years or less. Would the system be acquired? 2. Calculate the NPV and IRR for the project. Should the system be purchasedeven if it does not meet the payback criterion? 3. The project manager reviewed the projected cash flows and pointed out that two items had been missed. First, the system would have a salvage value, net of any tax effects, of 1,000,000 at the end of 10 years. Second, the increased quality and delivery performance would allow the company to increase its market share by 20 percent. This would produce an additional annual net benefit of 300,000. Recalculate the payback period, NPV, and IRR given this new information. (For the IRR computation, initially ignore salvage value.) Does the decision change? Suppose that the salvage value is only half what is projected. Does this make a difference in the outcome? Does salvage value have any real bearing on the companys decision?
Friedman Company is considering installing a new IT system. The cost of the new system is estimated to be 2,250,000, but it would produce after-tax savings of 450,000 per year in labor costs. The estimated life of the new system is 10 years, with no salvage value expected. Intrigued by the possibility of saving 450,000 per year and having a more reliable information system, the president of Friedman has asked for an analysis of the projects economic viability. All capital projects are required to earn at least the firms cost of capital, which is 12 percent. Required: 1. Calculate the projects internal rate of return. Should the company acquire the new IT system? 2. Suppose that savings are less than claimed. Calculate the minimum annual cash savings that must be realized for the project to earn a rate equal to the firms cost of capital. Comment on the safety margin that exists, if any. 3. Suppose that the life of the IT system is overestimated by two years. Repeat Requirements 1 and 2 under this assumption. Comment on the usefulness of this information.
Roberts Company is considering an investment in equipment that is capable of producing more efficiently than the current technology. The outlay required is 2,293,200. The equipment is expected to last five years and will have no salvage value. The expected cash flows associated with the project are as follows: Required: 1. Compute the projects payback period. 2. Compute the projects accounting rate of return. 3. Compute the projects net present value, assuming a required rate of return of 10 percent. 4. Compute the projects internal rate of return.
Shao Airlines is considering the purchase of two alternative planes. Plane A has an expected life of 5 years, will cost $100 million, and will produce net cash flows of $30 million per year. Plane B has a life of 10 years, will cost $132 million, and will produce net cash flows of $25 million per year. Shao plans to serve the route for only 10 years. Inflation in operating costs, airplane costs, and fares are expected to be zero, and the company’s cost of capital is 12%. By how much would the value of the company increase if it accepted the better project (plane)? What is the equivalent annual annuity for each plane?
Although the Chen Company’s milling machine is old, it is still in relatively good working order and would last for another 10 years. It is inefficient compared to modern standards, though, and so the company is considering replacing it. The new milling machine, at a cost of $110,000 delivered and installed, would also last for 10 years and would produce after-tax cash flows (labor savings and depreciation tax savings) of $19,000 per year. It would have zero salvage value at the end of its life. The project cost of capital is 10%, and its marginal tax rate is 25%. Should Chen buy the new machine?
A grocery store is considering the purchase of a new refrigeration unit with an Initial Investment of $412,000, and the store expects a return of $100,000 in year one, $72000 in years two and three, $65,000 in years four and five, and $38,000 in year six and beyond, what is the payback period?
Tropical Sweets is considering a project that will cost $70 million and will generate expected cash flows of $30 million per year for 3 years. The cost of capital for this type of project is 10%, and the risk-free rate is 6%. After discussions with the marketing department, you learn that there is a 30% chance of high demand with associated future cash flows of $45 million per year. There is also a 40% chance of average demand with cash flows of $30 million per year as well as a 30% chance of low demand with cash flows of only $15 million per year. What is the expected NPV?