Problem:
You are considering investing in a company that cultivates abalone for sale to local restaurants. Use the following information: Sales price per abalone = $ 80 Variable costs per abalone = $ 5.40 Fixed costs per year = $ 750,000 Depreciation per year = $ 51,429 Tax rate = 35 % The discount rate for the company is 15 percent, the initial investment in equipment is $360,000, 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:
Question 1: What is the accounting break-even level for the project?
Question 2: What is the financial break-even level for the project?
Note: Show supporting computations in good form.