Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Please solve using Excel Question 3: This question tests your understanding of the various form of break-evens. A proposed project has the following facts: o
Please solve using Excel
Question 3: This question tests your understanding of the various form of break-evens. A proposed project has the following facts: o O O Investment required today, t=0, $10M (cash outflow) o Length of project, 8 years Forecast unit sales per year, 600,000 o Sales price per unit, $84 o Variable cost, $36 per unit Fixed costs, $20M per year - (includes $4M of depreciation) o Taxes, 25% Net working capital which consists of, inventory + A/R - A/P, requires an investment of $500K today, t=0, which is INCLUDED in the above "Investment required today, t=0, $10M The NWC investment of $500K noted in the last bullet point will reverse at the end of the project, in other words, cash flows will be higher by $500K at t=8 Cost of capital, 10%. O O O a) What is the contribution per unit? (2 points) b) How many units must the company sell PER YEAR to breakeven on a net income (or net earnings) basis? (4 points) c) How many units must the company sell PER YEAR to breakeven on a free cash flow basis in years 1 through 7 (they are identical so only one calculation needs to be shown)? (3 points) d) How many units must the company sell to breakeven on an NPV basis? (4 points)Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started