1. Company is considering a 3-year project with a discount rate of 12 percent, a tax rate of 34 percent, and an initial cost of $12,000 for fixed assets. The selling price is estimated at $22 a unit based on variable costs per unit of $6.20 and fixed costs of $2,280. Depreciation is straight-line to zero over 3 years. What is the accounting breakeven point?
492 units
406 units
262 units
301 units
397 units
2. Leo is considering adding a deli to his general store. The remodelling expenses and shelving costs are estimated at $27,500. Deli sales are expected to produce net cash inflows of $7,300, $8,600, $9,700, and $9,750 for Years 1 to 4, respectively. Leo has a firm 3-year payback requirement. Should he add the deli?
No; because the payback period is 2.82 years
No; because the project never pays back
Yes; because the payback period is 3.19 years
Yes; because the payback period is 2.82 years
No; because the payback period is 3.19 years