Problem
Modern Artifacts can produce keepsakes that will be sold for $80 each. Non-depreciated fixed costs are $1,000 per year and variable costs are $60 per unit.
a. If the project requires an initial investment of $3000 and is expected to last for 5 years and the firm pays no taxes, what are the accounting and NPV breakeven levels of sales? The initial investment will be depreciated straight-line over 5 years to a final value of zero, and the discount rate is 10 percent.
b. How do your answers change if the firm's tax rate is 40 percent?