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question 5 and 6

California area, management is curious about the behavior of the plants' return on assets during a typical business cycle. a. Given the following information, calculate the break-even point in units of production for the two plants. b. The economics department has prepared sales projections for three business scenarios: recession, normal, and recovery. Sales under each scenario are expected to be as follows: recession, 300,000 units; normal, 500,000 units; and recovery, 800,000 units. Calculate the return on assets for the two plants under these three scenarios. c If the three scenarios are all equally likely, what will be the variance of the return on assets for plant 1? For plant 2? What would you advise American Fruit? Plant 1 Plant 2 Fixed cost $200,000 $600,000 Variable cost (per unit) 1.50 150 Price (per unit) 2.00 2.00 Investment 1,000,000 1,000,000 6. For the following project, the chief financial officer has prepared a set of certainty-equivalent factors to adjust the cash flows for the estimated risk. The economics department has also prepared a set of risk-adjusted interest rates at which to discount the project's cash flow. The project's initial investment is $150,000 and the Treasury security rate is 8%. a. What is the NPV of the project from the finance department's estimates? b. What is the NPV from the economics department's estimates? c. What would you advise the company to do? Year 1 2 3 Cash flows ($000) $50 $75 $130 Certainty equivalents 0.982 0.964 0.947 ( finance department) Risk-adjusted rates 10% 12% 14% (economics department)(5) Initial investment 1,000,000 2,000,000 4,000,000 5. American Fruit Co. is considering constructing a new plant to process frozen fruit juices. One plant would be capital intensive, the other much more labor intensive. Although the