Aproject requires an initial fixed asset investment of $148,000, has annual fixed costs of $39,800, a contribution margin of $14.62, a tax rate of 21 percent, a discount rate of 15 percent, and straight-line depreciation over the project's 3-year life. the assets will be worthless at the end of the project. what is the financial break-even point in units per year? (hint: first solve for eac and then use the formula)

The firm needs to sale for 5,708 units to break even finnancially.

Explanation:

We convert the fixed asset investment into an annuity:

PV148,000

time3

rate0.15

C  $ 64,820.590

Now, the amount above the annual fixed cost of 39,800 will be considered a gain for tax purposes, we need to increase it by 21% o give the sales before taxes.

before taxes target contribution:

64,820.59 / 1.20 = 54,017.16

We also have a depreciation component which generates a tax shield:

(148,000 / 3) x 21% = (10,360)

Now, we solve for the break even point of the sum of this components:

39,800 + 54,017.16 - 10,360= 83,457.16‬ dollars

Each units generates 14.62 dollars we divide and obtain the sales per year in untis:

83,457.16 / 14.62 = 5.708,42

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