Ayden’s Toys, Inc., just purchased a $445,000 machine to produce toy cars. The machine will be fully depreciated by the straight-line method over its 5-year economic life. Each toy sells for $13. The variable cost per toy is $5 and the firm incurs fixed costs of $305,000 per year. The corporate tax rate for the company is 22 percent. The appropriate discount rate is 10 percent. What is the financial break-even point for the project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Statement showing PV of cash inflow (Assuming units to be sold P)
Particulars | 1 year to 5 year |
Selling price per unit | 13 |
Variable cost per unit | 5 |
Contribution per unit | 8 |
No of units | P |
Total contribution | 8P |
Less: | |
Fixed cost | 305000 |
Depreciation | 89000 |
PBT | 8P - 394000 |
Tax @ 22% | 1.76P - 86680 |
PAT | 6.24P - 307320 |
Add: Depreciation | 89000 |
Annual cash flow | 6.24P -218320 |
PVIFA(10%,5years) | 3.7908 |
PV of cash inflow | 23.6545P - 827604.5675 |
Thus to achieve cash break even , PV of cash inflow = PV of cash outflow
= 23.6545P - 827604.5675 = 445000
= 23.6545P = 1272604.5675
P = 53799.66 units
Thus units to be sold = 53799.66 units
Ayden’s Toys, Inc., just purchased a $445,000 machine to produce toy cars. The machine will be...
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