A company is considering investing in a project,which requires the purchase of a new machine for $250,000.The asset has a six-year life,a CCA rate of 30 percent,and an expected salvage value of $30,000.The selling price of the product is $40 per unit,while the variable cost is $18 per unit and the fixed costs are $50,000 per year.The company's effective tax rate is 40 percent and cost of capital is 10 percent.Assume the asset class remains open after the asset is sold.At what level of sales will the company break even?

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CF₀ = $250,000 11ea8229_3479_f844_bbd8_37a22c64c3ce_TB1726_00 11ea8229_3479_f845_bbd8_ad0d48a79871_TB1726_00 PV(FCAT)= $50,000*(1 - 40%)*PVAF(10%,6)= $130,657.82 PV(OIAT)= −$66,510.64 − $16,934.22 + $250,000 + $130,657.82 = $297,212.96 Annual Pre-tax Operating Income = 11ea8229_3479_f846_bbd8_ab6758d55edd_TB1726_11 Break-even sales level = 11ea8229_3479_f847_bbd8_0d679861eb33_TB1726_11

A Company Is Considering Investing in a Project,which Requires the Purchase