Holden Corp. plans to make computer monitors. Each monitor they make will sell for $120. The materials to produce one monitor cost $30. The fixed costs incurred each year will be $160,000. The machinery costs $900,000 and will be depreciated straight-line over its 10-year life to a salvage value of zero. Holden Corp. is taxed at 40 percent.

a. (5 marks) If sales are 5,000 monitors each year, what is the annual cash flow in years 1-10?

b. (3 marks) The computer monitor project has a beta of 1.2. Treasury bills yield 3 percent and the market risk premium is 7 percent. Calculate the required return for the project.

c. (3 marks) Calculate the net present value of the computer monitor project and determine whether you would accept or reject the project.

d. (1 mark) The net present value break-even number of monitors would be GREATER THAN or LESS THAN 5,000. (circle one)