A Company Is Considering Investing in a Project, Which Requires

question 121

Multiple Choice

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%, 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% and cost of capital is 10%.Assume the asset class remains open after the asset is sold and the half-year rule applies for the first year.At what level of sales will the company break even?

• A)3,102 units
• B)4,011 units
• C)5,170 units
• D)6,685 units

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Definitions:

Uncertainty and Volatility

Conditions characterized by unpredictable changes and a lack of stability, often referring to economic or financial markets.

Mechanistic

Describing an organizational structure that is highly formal, rigid, and bureaucratic, focusing on hierarchy, defined roles, and rules.

Organic Form

An organizational structure characterized by flexibility, decentralized decision-making, and a lack of formal procedures and hierarchies, often adapting quickly to environmental changes.

Perfect Substitute

A good, service, or resource that can be used in place of another with no loss of value or utility to the consumer.