1. You are considering investing in a company that cultivates abalone for sale to local restaurants. Use the following information:
Sales price per abalone = $ 97.00
Variable costs per abalone = $ 6.10
Fixed costs per year = $ 720,000.00
Depreciation per year = $ 41,000.00
Tax rate = 40.00 %
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The discount rate for the company is 13 percent, the initial investment in equipment is $287,000, and the project's economic life is seven years. Assume the equipment is depreciated on a straight-line basis over the project's life.
Requirement 1:
What is the accounting break-even level for the project? (Round your answer to the nearest whole number. (e.g., 32))
Accounting break-even ___________ units
Requirement 2:
What is the financial break-even level for the project? (Round your answer to the nearest whole number. (e.g., 32))
Financial break-even ______ units
2. McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $820 per set and have a variable cost of $400 per set. The company has spent $155,000 for a marketing study that determined the company will sell 21,000 sets per year for seven years. The marketing study also determined that the company will lose sales of 4,000 sets of its high-priced clubs. The high-priced clubs sell at $1,250 and have variable costs of $710. The company will also increase sales of its cheap clubs by 3,000 sets. The cheap clubs sell for $410 and have variable costs of $140 per set. The fixed costs each year will be $7,770,000. The company has also spent $932,000 on research and development for the new clubs. The plant and equipment required will cost $21,000,000 and will be depreciated on a straight-line basis. The new clubs will also require an increase in net working capital of $913,000 that will be returned at the end of the project. The tax rate is 33 percent, and the cost of capital is 8 percent.
Suppose you feel that the values are accurate to within only ±12 percent. The best-case NPV is $ and worst-case NPV is $ . (Do not include the dollar signs ($). Negative amount should be indicated by a minus sign. Round your answers to 2 decimal places. (e.g., 32.16))