The Marx Brewing Company recently installed a new bottling machine. The machine’s initial cost is $2,000, and can be depreciated on a straight line basis to a zero salvage in 5 years.

The Marx Brewing Company recently installed a new bottling machine. The machine’s initial cost is $2,000, and can be depreciated on a straight line basis to a zero salvage in 5 years. The machine’s fixed cost per year is $1,800, and its variable cost is $0.50 per unit. The selling price per unit is $1.50. Marx’s tax rate is 34%, and it uses a 16% discount rate. Calculate the accounting break-even point on the new machine, as well as the present value break-even point on the new machine.

1. Accounting break-even point by using new machine;

Q = (1800+400)/1.0 = 2,200

2. Present-value break-even point;

(Q – 1800)(1 – 0.34) + 0.34 × 400 = OCF

So, OCF may be calculated as:

NPV = 0,  Let PV = 2000, n=5, I=16%, PMT=?

The OCF is $610.82 and after substituting it in the above mentioned equation it will b;

(Q – 1800)(1 – 0.34) + 0.34 × 400 = 610.82

Q = 2519