# You are evaluating a project that will require an

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6. You are evaluating a project that will require an investment of \$15 million that will be depreciated over a period of 19 years. You are concerned that the corporate tax rate will increase during the life of the project. a. Would this increase the accounting break-even point? Yes No Correct
b. Would it increase the NPV break-even point? Explanation
7. Modern Artifacts can produce keepsakes that will be sold for \$60  each. Nondepreciation fixed costs are \$3,000 per year, and variable  costs are \$30 per unit. The initial investment of \$3,000 will be  depreciated straight-line over its useful life of 5 years to a final value of  zero, and the discount rate is 10%. a. What is the accounting break-even level of sales if the firm pays no  taxes?  (Do not round intermediate calculations. Round your answer to the nearest whole number.)
b.   What is the NPV break-even level of sales if the firm pays no  taxes?   (Do not round intermediate calculations. Round your answer to the nearest whole number.)
c.   What is the accounting break-even level of sales if the firm’s tax rate  is 30%?   (Do not round intermediate calculations. Round your answer to the nearest whole number.)
Explanation Some values below may show as rounded for display purposes, though unrounded numbers should be used for actual calculations.
b. For the NPV to equal zero, the present value of the operating cash flows must equal the initial investment.
For the NPV to equal zero, the present value of the operating cash flows must equal the initial investment. \$3,0 00 = OCF (PVIFA 10%, 5 ) OCF=\$791.39 OCF= [(Revenue – Expenses) × (1 – Tax)] + (Depreciation × Tax rate) \$791. 39 = ({[ Q × (\$60 – 30)] – \$3,000} × (1 – 0.30)) + [(\$3,000 / 5) × 0.30] \$791. 39 =\$21 Q – 2,100 + 180 Q =129 units Next Visit question map Question7of11Total 7 of 11 Prev
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