Compute the financial break-even price of the book

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Reference no: EM131078186

Lee Inc. purchases a $300,000 digital color printer, which will be fully depreciated according to the straight-line method over its 5-year economic life, for a 4-year publishing project. The printer will be sold for $75,000 at the termination of the project. The variable costs are $30 per copy of the book, and annual fixed production costs are $80,000. An annual sales volume of 100,000 copies of the book is expected over the life of the project. The marginal tax rate is 35%, the inflation rate is 2%, and the real discount rate is 12%. This project requires an initial net working capital requirement of $50,000 of which 85% will be recovered at the termination of the project. Compute, in nominal term, (a) the annual break-even operating cash flow, and (b) use your answer for (a) to compute the financial break-even price of the book.

Reference no: EM131078186

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