# Modem Artifacts can produce keepsakes that will be

*Question*: Modem Artifacts can produce keepsakes that will be

**Do both questions. Q3 compulsory**

2) Modem Artifacts can produce keepsakes that will be sold for $100 each. Non-depreciation fixed costs are $900 per year and variable costs per unit are $80. If the project requires an initial investment of $4,900 and is expected to last for 7 years and the firm pays no taxes, what are the accounting and NPV break-even levels of sales in terms of number of units sold? The initial investment will be depreciated straight-line over 7 years to a final value of zero, and the discount rate is 10%.

3) What is the degree of operating leverage for Modem Artifacts in the previous problem when sales are $12,000? What is the degree of operating leverage when sales are $18,000? Why is operating leverage different at these two levels of sales?

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