Problem 1: Consider the following information for a big-screen television distributor:
Sales price per TV = $1,500
Variable costs per TV = $1,100
Fixed costs per year = $120,000
Depreciation per year = $20,000
Tax rate = 35%
How many units must the distributor sell in a given year to break even (in terms of accounting profit)?
Problem 2: J.'s Toys Inc. just purchased a $200,000 machine to produce toy cars. The machine will be fully depreciated by the straight-line method over its five-year economic life. Each toy sells for $25. The variable cost per toy is $5, and the firm incurs fixed costs of $350,000 each year. The corporate tax rate for the company is 25 percent. The appropriate discount rate is 12 percent. What is the present value break-even point for the project?