Webmaster.com has developed a powerful new server that would be used for corporations internet activities. It would cost $10 million to buy the equipment necessary to manufacture the server in year 0 (assume 2020) of the project; another $10,000 in shipping charges would be required; and it would cost an additional $30,000 to install the equipment. The equipment will be installed in a building owned by the firm and located in Washington. This building, which is vacant now and the land can be rented at $20,000 annually before tax. The project would require a net working capital at the beginning of each year that is estimated to be around 10% of sales. The servers are expected to sell for $20,000 per unit in the year 1 (assume 2021), and Webmaster believes that variable costs are going to be roughly a round $17,500 per unit. After year 1 (2021), the sales price and variable costs are projected to increase at the inflation rate of 3%. The companys non-variable (fixed costs) is going to be $1 million in year 1 (2021), and then it will increase by inflation thereafter. The server project would have a life of 5 years. If the project is undertaken, it must be continued for the entire 5 years. Moreover, the projects returns are expected to be highly correlated with the returns on the firms other assets. The firm believes that it could sell 2,000 units per year. The equipment would be depreciated over 7-year period, using MACRS rates. The estimated market value of the equipment at the end of the projects 5-year life is $700,000. Webmasters federal tax rate is 30%. Its cost of capital is 10% for average risk projects. Low risk projects are evaluated with a WACC of 7%. High risk projects are assessed at a WACC of 15%.

1. Compute the breakeven point for the following variables: equipment costs, selling quantity, selling price and variable cost. (at the Breakeven point of the variable NPV =0)