Thompson's has determined that a new project has expected fixed costs of $132,378,a contribution margin of $36.20,and a tax rate of 21 percent.The investment has an initial cost of $548,000 that will be depreciated straight-line to zero over the 5-year life of the project.What is the expected present value break-even point in units per year if the discount rate is 15 percent?
A)8,569
B)9,046
C)9,331
D)9,849
E)9,615

Question

Quizplus · Accepted Answer

The correct answer is A because the expected present value break-even point in units per year is 8,569. This is calculated by dividing the initial investment by the present value of the annual cash flows. The present value of the annual cash flows is calculated by multiplying the annual cash flows by the present value factor for 15 percent and 5 years. The annual cash flows are calculated by subtracting the fixed costs from the contribution margin and then multiplying by the tax rate.

Thompson's Has Determined That a New Project Has Expected Fixed