Question

Ayden’s Toys, Inc., just purchased a $445,000 machine to produce toy cars. The machine will be fully depreciated by the straight-line method over its 5-year economic life. Each toy sells for $13. The variable cost per toy is $5 and the firm incurs fixed costs of $305,000 per year. The corporate tax rate for the company is 22 percent. The appropriate discount rate is 10 percent. What is the financial break-even point for the project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Answer 1

Statement showing PV of cash inflow (Assuming units to be sold P)

Particulars	1 year to 5 year
Selling price per unit	13
Variable cost per unit	5
Contribution per unit	8
No of units	P
Total contribution	8P
Less:
Fixed cost	305000
Depreciation	89000
PBT	8P - 394000
Tax @ 22%	1.76P - 86680
PAT	6.24P - 307320
Add: Depreciation	89000
Annual cash flow	6.24P -218320
PVIFA(10%,5years)	3.7908
PV of cash inflow	23.6545P - 827604.5675

Thus to achieve cash break even , PV of cash inflow = PV of cash outflow

= 23.6545P - 827604.5675 = 445000

= 23.6545P = 1272604.5675
P = 53799.66 units

Thus units to be sold = 53799.66 units