Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Show all work please 5. The new hole-maker/donut-filler at Dunker Doughnuts is projected to cost $85,000. According to the base case cited in a secret

image text in transcribedShow all work please
5. The new hole-maker/donut-filler at Dunker Doughnuts is projected to cost $85,000. According to the base case cited in a secret management report, the following cash flows can be expected in each of the five years of the machine's life. There is no salvage value or change in working capital. Year 0 $85,000 Years 1-5 Investment Sales Variable costs@ 78.5% S300,000 235,500 Fixed costs Depreciation 30,000 17,000 Pretax Profit Taxes @ 40% 17,500 7,000 After-tax Profits 10,500 Depreciation Cash Flows 17,000 27,500 Assume the cost of capital is 14%. NPV $9,409.73 Answer parts a through d a.) What if the price of the machine turns out to be $100,000 instead of $85,000 (assume straight- line depreciation)? What is the new net present value? b.) Instead, what if the economy booms and sales come in at $400,000 per year (variable costs remain at 78.5% of sales)? What is the new net present value? c) Assume the following scenario: Due to strong competitive pressures sales are now expected to be 15% below expectations and variable costs will represent 80% of sales. Calculate the new net present value given this scenario. d) Calculate the accounting break-even level of sales of the base (given) case (FYI: each doughnut sells for $2)

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

Principles Of Financial Modelling Model Design And Best Practices Using Excel And VBA

Authors: Michael Rees

1st Edition

111890401X, 978-1118904015

More Books

Students also viewed these Finance questions