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ECON 2560 (71)
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ECON2560 CH 10.docx

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Department
Economics
Course
ECON 2560
Professor
Nancy Bower
Semester
Winter

Description
CH 10 PROJECT ANALYSIS Break-even level of revenues Fixed costs including depreciation = profit from each additional dollar of sales Example: Fixed costs 2 million, Depreciation 0.45 million, Variable costs are 81.25% of sales Break-even level of revenue = (2m+0.45m) / (1-0.8125) = $13.067m NPV break-even point: The level of sales at which NPV is zero Initial Investment $5,400,000 12-year annuity factor (8% discount rate) = (1/0.08)*(1-1/(1.08)^12) = 7.5361 Variable Cost 81.25% of Sales Fixed Cost 2m Depreciation 0.45m Pretax Profit (1-81.25%)*Sales – Fixed Cost – Dep
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