Problem
Rustico's Restaurant is thinking of purchasing a wood-fired pizza oven to increase options at the restaurant beyond the freshly made pasta offerings. The oven costs $400,000 and can be depreciated straight-line to zero in the next five years. The pizzas can be sold for $15.00 and variable costs for labour and ingredients are estimated at $11.00 for each pie.
a) If the pizza business is expected to contribute $75,000 to the overhead (fixed) costs of the business, how many pizza pies must be sold to reach Accounting Break-Even?
b) How does this compare to the Financial Break-Even, when the cost of capital is 10% and the tax rate is 28%?