QUESTION 20

1. A company is considering a 3-year project that requires an initial installed equipment cost of $10,000. The project engineer has estimated that the operating cash flows will be $4,000 in year 1, $6,000 in year 2, and $9,000 in year 3. The new machine will also require a parts inventory of $2,000 at the beginning of the project (assume this inventory can be sold for cost at the end of the project). It is also estimated that the equipment can be sold as salvage for an after tax salvage cash flow of $4,000 at the end of the project. If the tax rate is 26% and the required rate of return is 11%, what is the net present value (NPV) of this project? (Answer to the nearest dollar.)

2. A company is considering a 5-year project that opens a new product line and requires an initial outlay of $78,000. The assumed selling price is $93 per unit, and the variable cost is $66 per unit. Fixed costs not including depreciation are $16,000 per year. Assume depreciation is calculated using stright-line down to zero salvage value. If the required rate of return is 13% per year, what is the accounting break-even point? (Answer to the nearest whole unit.)