Question
Tom is evaluating a project that costs $950,000, has a five-year life, and has no salvage value. Assume that depreciation is straight-line to zero over
Tom is evaluating a project that costs $950,000, has a five-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 90,000 units per year, price per unit is $65, variable cost per unit is $30, and fixed costs are $2 million per year. The tax rate is 21%, and the required rate of return on the project is 12%.
A) Calculate the NPV for the project. (Round to 2 decimals)
B) Calculate the accounting break-even number of units for the project. (Round to 2 decimals)
C) Calculate the equivalent annual cost of the machine. (Round to 2 decimals)
D) Calculate the financial breakeven number of units for the project. (Round to 2 decimals)
E) Suppose the projections given for price, quantity, VC per unit, and FC are accurate within +/- 15%. Calculate the best case NPV. (Round 2 decimals)
F) Suppose the projections given for price, quantity, VC per unit, and FC are accurate within +/- 15%. Calculate the worst-case NPV. (Round 2 decimals)
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