Question
Assume that the company, where you are working as a team in Financial Department, is considering a potential project with a new product that is
Assume that the company, where you are working as a team in Financial Department, is considering a potential project with a new product that is expected to sell for
an average price of $22 per unit and the company expects it can sell 650 000 unit per year at this price for a period of 4 years. Launching this project will require purchase of a $3 500 000 equipment that has residual value in four years of $500 000 and adding $ 850 000 in working capital which is expected to be fully retrieved at the end of the project. Other information is
available below:
Depreciation method: straight line
Variable cost per unit: $17
Cash fixed costs per year: $450 000
Discount rate: 10%
Tax Rate: 30%
Perform an NPV break even analysis for the case where price per unit decreases by 20 % to identify the number of unit sales that is needed for the project to get break-even.
Trial and error method or What – If Analysis with excel spread sheet is to be used.
Step by Step Solution
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Step: 1
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