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Modern Artifacts can produce keepsakes that will be sold for $270 each. Nondepreciation fixed costs are...

Modern Artifacts can produce keepsakes that will be sold for $270 each. Nondepreciation fixed costs are $4,800 per year, and variable costs are $250 per unit. The initial investment of $12,500 will be depreciated straight-line over its useful life of five years to a final value of zero, and the discount rate is 10%.

  1. What is the accounting break-even level of sales if the firm pays no taxes?

  2. What is the NPV break-even level of sales if the firm pays no taxes? (Do not round intermediate calculations. Round your final answer to the nearest whole number.)

  3. What is the accounting break-even level of sales if the firm’s tax rate is 20%?

  4. What is the NPV break-even level of sales if the firm’s tax rate is 20%? (Do not round intermediate calculations. Round your final answer to the nearest whole number.)

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Answer #1

Solution: SP FC 270 4,800 250 12500 Vc Initial investment Years Discount rate Tax rate Dep = 12500/5 10% 0% | 2,500 Part a: APart c: Accounting Break-even sales = (Cash FC+Dep)/(SP-VC) (4800+2500)/(270-250) 365 units Part d: Let Q be the NPV break

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