Assume ABC Corporation operates in the United States and uses straight line depreciation (instead of the CCA (Capital Cost Allowance) approach we use in Canada). It acquires equipment for $50,000 (there is no half year rule in the US) and will depreciate it in equal annual amounts over 5 years, after which the machinery will be worthless. ABC expects to produce and sell 100,000 units of its product per year using this equipment, at a selling price of $7.95 per unit. The product that the ABC manufactures on this equipment has variable costs equal to 70% of sales revenue and the fixed costs other than depreciation are $83,000/year. The corporate tax rate is 30%. The appropriate discount rate is 11%.

a) What is the Net Present Value (NPV) of this equipment? (6 marks)

b) What is the NPV breakeven point for this equipment? (3 marks)