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    8.7 Consider the following information for a big-screen television distributor:

    Sales price per TV = $1,500
    Variable costs per TV = $1,100
    Fixed costs per year = $120,000
    Depreciation per year = $20,000
    Tax rate = 35%
    How many units must the distributor sell in a given year to break even (in terms of accounting profit)?

    8.12 J.'s Toys Inc. just purchased a $200,000 machine to produce toy cars. The machine will be fully depreciated by the straight-line method over its five-year economic life. Each toy sells for $25. The variable cost per toy is $5, and the firm incurs fixed costs of $350,000 each year. The corporate tax rate for the company is 25 percent. The appropriate discount rate is 12 percent. What is the present value break-even point for the project?

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    Solution Preview

    8.7

    Consider the following information for a big-screen television distributor:

    Sales price per TV = $1,500
    Variable costs per TV = $1,100
    Fixed costs per year = $120,000
    Depreciation per year = $20,000
    Tax rate = 35%
    How many units must the distributor sell in a given year to break even (in terms of accounting profit)?

    Selling price= $1,500 per TV
    variable cost= $1,100 per TV
    Contribution= $400 per TV

    Fixed Cost + Depreciation= $140,000 =120000+20000

    Therefore, Breakeven units= 350 =140000/400

    Answer: 350 TV sets

    8.12
    J.'s Toys Inc. just purchased a $200,000 machine to produce toy cars. The machine will be fully depreciated by the straight-line method over its five-year economic ...

    Solution Summary

    The solution provides answers to two questions on break even.

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