Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

LLlime Inc. is considering a new product launch. The project will cost $2,000,000 have a ten-year life, and have no salvage value; depreciation is straight-line

image text in transcribed

LLlime Inc. is considering a new product launch. The project will cost $2,000,000 have a ten-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 30,000 units per year; price per unit will be $150, variable costs per unit will be $80 and fixed costs will be $600,000 per year. The required return on the project is 15 percent, and tax rate =0% (i.e., ignore taxes). a. What is the accounting break-even level of output for this project? b. Find the firm's operating cash flow (OCF) if the firm just breaks-even on an accounting basis (that is, at Q= accounting break-even level). c. How many units, at a minimum, must LLlime sell before the project's OCF becomes negative? d. How many units, at a minimum, must LLlime sell before the project's NPV becomes negative? e. What if the marketing department of LLlime reports the annual expected sales of 13,000 units. Shall LLlime accept this project? Why? Calculate NPV and IRR at this sales level of 13,000 units

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

More Books

Students also viewed these Finance questions