What is the present value of the break-even point

Assignment Help Financial Management

Reference no: EM131176487

Luke Athletics Inc. has purchased a $200,000 machine to produce tennis balls. The machine will be fully depreciated by the straight-line method for its economic life of five years and will be worthless after its life. The firm expects that the sales price of the toy is $35 while its variable cost is $15. The firm should also pay $325,000 as fixed costs each year. The corporate tax rate for the company is 25 percent, and the appropriate discount rate is 12 percent.

I. What is the present value of the break-even point?

II. What will be the impact of an increase in the tax rate from 25% to 34% on the breakeven point?

III. What will be the impact of a decrease in the cost of capital from 12% to 10% on the project breakeven point?

IV. How is it different from accounting breakeven point?

Reference no: EM131176487

Questions Cloud

What is the current price of blue devil stock : Blue Devil Corporation stock, of which you own 500 shares, will pay a $2 per share dividend one year from today. Two years from now Blue Devil will close its doors and stockholders will receive a liquidating dividend of $17.5375 per share. The requir..

Best means of reducing or offsetting political risk : Which one of these is probably the best means of reducing or offsetting political risk?

Advised when evaluating a capital project : Which one of the following is advised when evaluating a capital project in a foreign country if you are concerned about political risk?

Firm is considering two mutually exclusive : Suppose your firm is considering two mutually exclusive, required projects with the cash flows shown below. The required rate of return on projects of both of their risk class is 10 percent, and that the maximum allowable payback and discounted payba..

What is the present value of the break-even point : Luke Athletics Inc. has purchased a $200,000 machine to produce tennis balls. The machine will be fully depreciated by the straight-line method for its economic life of five years and will be worthless after its life. What is the present value of the..

What will its dividend payout ratio be : Your company has decided that its capital budget during the coming year will be $20 million. Its optimal capital structure is 60 percent equity and 40 percent debt. Its earnings before interest and taxes (EBIT) are projected to be $34.667 million for..

Calculate the present value of the associated profit : Customers 1, 2, and 3 have gross values for the product of v1 = 12, v2 = 10, and v3 = 7, respectively. Consumers buy at most one unit of the good over the 2 periods. There are only 2 selling periods. If the monopolist makes no sales in the first peri..

Which investment would generate the greater after-tax yield : If a taxpayer in the 28% tax bracket has the opportunity to invest in a taxablecorporate bond that pays 6% interest or to invest in a tax-exempt municipal bond that pays 3.5% interest (assuming that all other elements of the two bonds, e.g., risk, ar..

What is the annual financing cost of these bonds : General Automobile Corp. has decided to issue three-year foreign bonds in Japan, denominated in 5,000,000,000 Japanese Yen at par. The bonds have an annual coupon rate of 6.5%, and interest is paid annually. If the Yen is expected to appreciate from ..

User Account

All Pages