How many choppers would you have to sell for net income

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Problem: You and your friends are thinking about starting a motorcycle company named Apple Valley Choppers. Your initial investment would be $500,000 for depreciable equipment, which should last five years, and your tax rate would be 40%. You could sell a chopper for $10,000, assuming your average variable cost per chopper is $3000, and assuming fixed costs, such as rent, utilities, and salaries, would be $200,000 per year.

Required:

a. Accounting breakeven: How many choppers would you have to sell for net income to equal zero, ignoring the costs of financing?

b. Financial breakeven: How many choppers would you have to sell to generate NPV of zero, if you required a 15% return?

c. Assuming you could sell 60 choppers per year, what would be your IRR?

Reference no: EM132434867

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