What is the accounting-based breakeven unit price

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Texas Instruments Co. plans to invest $12 million in a new calculator manufacturing plant. The plant is expected to last for 4 years and has an annual production level of 200,000 units. The company uses a straight-line depreciation schedule, and all $12 million of initial investment will be depreciated. The unit variable cost is $25. Fixed costs are $2 million a year. The project's opportunity cost of capital is 10%. The company's tax rate is 40%. (20 points)

Question (a) What is the PV-based breakeven unit price?

Question (b) What is the accounting-based breakeven unit price?

Question (c) Calculate the project's NPV if the unit price is at the accounting-based breakeven level.

If the NPV is positive, explain why it is positive, and if it is negative, explain why it is negative.

Reference no: EM132584983

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