Buckingham Packaging is considering expanding its production capacity by purchasing a new$$ machine, the$$ XC$-750.$ The cost of the$$ XC$-750$ is $ $2\mathrm{.}95$ million.$$ Unfortunately, installing this machine will take several months and will partially disrupt production. The firm has just completed a $ $50$ comma $000$ feasibility study to analyze the decision to buy the$$ XC$-750,$ resulting in the following$$ estimates:

Marketing$$: Once the$$ XC$-750$ is operating next$$ year, the extra capacity is expected to generate $ $9\mathrm{.}0$ million per year in additional$$ sales, which will continue for the$10-$year life of the machine.

Operations$$: The disruption caused by the installation will decrease sales by $ $5$ million this year. Once the machine is operating next$$ year, the cost of goods for the products produced by the$$ XC$-750$ is expected to be $70\%$ of their sale price. The increased production will require additional inventory on hand of $ $1\mathrm{.}2$million$,$ to be added in year $0$ and depleted in year $10.$

Human Resources$$: The expansion will require additional sales and administrative personnel at a cost of $ $2$ million per year.

Accounting$$: The$$ XC$-750$ has a CCA rate of $35\%$ and no salvage value is expected. The firm expects receivables from the new sales to be $14\%$ of revenues and payables to be$10\%$ of the cost of goods sold.$$ Buckingham's marginal corporate tax rate is $33\%.$

e$.$If the appropriate cost of capital for the expansion is $11\%,$ what is the NPV$$ break$-$even level of new sales for the$$ expansion? What is the NPV$$ break$-$even level for the cost of goods$$ sold?

f$.$Buckingham could instead purchase the$$ XC$-900,$ which offers even greater capacity. The cost of the$$ XC$-900$ is$$ $$4$ million. The extra capacity would not be useful in the first two years of$$ operation, but would allow for additional sales in years $3$minus$10.$ What level of additional sales$($above the $ $9\mathrm{.}0$ million expected for the$$ XC$-750)$ per year in those years would justify purchasing the larger$$ machine?

Question content area bottom

Part $1$

e$.$ If the appropriate cost of capital for the expansion is $11\%,$ what is the NPV$$ break$-$even level of new sales for the$$ expansion?

$$The$$ break$-$even level of sales of the expansion is $$$

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enter your response here.$($Round to the nearest$$ dollar.$)$