A project requires an initial investment of $500,000 and expects to produce an after-tax operating cash flow of $180,000 per year for three years. The asset value will be depreciated to zero using straight-line depreciation over the three years. At the end of the project, the asset could be sold at market price. Assume a 21% tax rate and 15% cost of capital.  What is the market price of the fixed asset that will make this project break even?

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Q: 16

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A:

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Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.