You are considering investing in a company that cultivates abalone for sale to l

Question

You are considering investing in a company that cultivates abalone for sale to local restaurants. Use the following information:

The discount rate for the company is 15 percent, the initial investment in equipment is $861,000, and the project’s economic life is seven years. Assume the equipment is depreciated on a straight-line basis over the project’s life.

What is the accounting break-even level for the project? (Do not round intermediate calculations and round your answer to the nearest whole number (e.g., 32).)

What is the financial break-even level for the project? (Do not round intermediate calculations and round your answer to the nearest whole number (e.g., 32).)

You are considering investing in a company that cultivates abalone for sale to local restaurants. Use the following information:

Explanation / Answer

Contribution per Unit = Sales Price – Variable Cost = 35.30 – 6.40 = 28.9

Accounting Breakeven Level = Fixed Cost + Depreciation/Contribution per Unit

                                                        = 378,000 + 123,000/28.9 = 17336 units

Return on investment = Initial Investment x Discount Rate

                                                = 861,000 x 15 % = 129150 %

Financial Breakeven Level = 378,000 + 123,000 + 129150 /28.9 = 21804 units

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