F1 You are considering investing in a company that cultivates abalone for sale to localrestaurants. Use the following information:Sales price per abaloneVariable costs perabaloneFixed costs per yearDepreciation per yearTax rate= $34.90= $6.00=$374,000= $119,000= 21%The discount rate for the company is 13 percent, the initial investment in equipment is$714,000, and the project's economic life is six years. Assume the equipment isdepreciated on a straight-line basis over the project's life.a. What is the accounting break-even level for the project? (Do not round intermediatecalculations and round your answer to 2 decimal places, e.g., 32.16.)b. What is the financial break-even level for the project? (Do not round intermediatecalculations and round your answer to 2 decimal places, e.g., 32.16.)a. Accounting break-evenb. Financial break-evenunitsunits

The objective of the question is to calculate the accounting break-even level and the financial…

Answered: You are considering investing in a…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter14: Capital Structure Management In Practice

Section14.A: Breakeven Analysis

Problem 8P

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The Rodriguez Company is considering an average-risk investment in a mineral water spring project that has an initial after-tax cost of 170,000. The project will produce 1,000 cases of mineral water per year indefinitely, starting at Year 1. The Year-1 sales price will be 138 per case, and the Year-1 cost per case will be 105. The firm is taxed at a rate of 25%. Both prices and costs are expected to rise after Year 1 at a rate of 6% per year due to inflation. The firm uses only equity, and it has a cost of capital of 15%. Assume that cash flows consist only of after-tax profits because the spring has an indefinite life and will not be depreciated. a. What is the present value of future cash flows? (Hint: The project is a growing perpetuity, so you must use the constant growth formula to find its NPV.) What is the NPV? b. Suppose that the company had forgotten to include future inflation. What would they have incorrectly calculated as the projects NPV?
Caduceus Company is considering the purchase of a new piece of factory equipment that will cost $565,000 and will generate $135,000 per year for 5 years. Calculate the IRR for this piece of equipment. For further instructions on internal rate of return In Excel, see Appendix C.
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Your company is planning to purchase a new log splitter for is lawn and garden business. The new splitter has an initial investment of $180,000. It is expected to generate $25,000 of annual cash flows, provide incremental cash revenues of $150,000, and incur incremental cash expenses of $100,000 annually. What is the payback period and accounting rate of return (ARR)?
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Consolidated Aluminum is considering the purchase of a new machine that will cost $308,000 and provide the following cash flows over the next five years: $88,000, 92,000, $91,000, $72,000, and $71,000. Calculate the IRR for this piece of equipment. For further instructions on internal rate of return in Excel, see Appendix C.
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