You have an idea to sell handmade porcelain plates. The only investment needed is a furnace (oven) that you can buy for $40,000. The furnace assumed to last for 8 years and it will be fully depreciated by the straight-line method over its economic life. Other fixed costs amount to $1,000 per year. Taxes are 30 percent. Your discount rate is 15 percent. a. What is the accounting break-even point if each plate costs $4 to make and you can sell plates for $12 apiece? b. Calculate the financial break-even point

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
icon
Related questions
Question
  1. You have an idea to sell handmade porcelain plates. The only investment needed is a furnace (oven) that you can buy for $40,000. The furnace assumed to last for 8 years and it will be fully depreciated by the straight-line method over its economic life. Other fixed costs amount to $1,000 per year. Taxes are 30 percent. Your discount rate is 15 percent.

    a. What is the accounting break-even point if each plate costs $4 to make and you can sell plates for $12 apiece?

    b. Calculate the financial break-even point

Expert Solution
steps

Step by step

Solved in 6 steps with 3 images

Blurred answer
Knowledge Booster
Capital Budgeting
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Essentials Of Investments
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
FUNDAMENTALS OF CORPORATE FINANCE
FUNDAMENTALS OF CORPORATE FINANCE
Finance
ISBN:
9781260013962
Author:
BREALEY
Publisher:
RENT MCG
Financial Management: Theory & Practice
Financial Management: Theory & Practice
Finance
ISBN:
9781337909730
Author:
Brigham
Publisher:
Cengage
Foundations Of Finance
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education