This question tests your understanding of the various form of "breakevens". A proposed project has the following facts:

o Investment required today, t=0, $10M (cash outflow)

o Length of project, 8 years o Forecast unit sales per year, 600,000

o Sales price per unit, $80

o Variable cost, $36 per unit

o Fixed costs, $20M per year - (includes $5M of depreciation)

o Taxes, 20%

o Net working capital which consists of, inventory +A/R -A/P, requires an investment of $500K today, t0, 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

a) What is the contribution per unit?

b) How many units must the company sell PER YEAR to breakeven on a net income (or net earnings) basis?

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)?

d) How many units must the company sell to breakeven on an NPV basis?