Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

You are currently employed at a major investment bank and are making 50,000/year (and expect to make that amount each year for the next five

You are currently employed at a major investment bank and are making 50,000/year (and expect to make that amount each year for the next five years). A friend comes to you with an idea for a project to make soundproof glass shields for cars to protect people from noise. You will have to quit your job, and the project will require an initial investment in equipment of 350,000 (which can be depreciated straight line over five years to a salvage value of 100,000).

You expect to sell 10000 units at 50/unit each year for the next five years. It will cost you 20 per unit to manufacture and other fixed costs will amount to 50,000/year. You own a house (which you are renting out right now for 14,000/year) that you think you can use for this project. (You cannot depreciate this house if you rent it, but you can claim depreciation of 10,000 a year if you take this project) In addition your tax rate is 40% and your discount rate is 10%.

a. What is the opportunity cost of using your house for this project?

b. What is the opportunity cost of having to quit your job to take this project?

c. What is the after-tax cashflow each year from this project?

d. What is the NPV of this project?

e. How many units would you have to sell to break even?

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

Financial Management For Public Health And Not For Profit Organizations

Authors: Steven A. Finkler

2nd Edition

0131471988, 978-0131471986

More Books

Students also viewed these Finance questions

Question

What are the challenges associated with tunneling in urban areas?

Answered: 1 week ago

Question

What are the main differences between rigid and flexible pavements?

Answered: 1 week ago

Question

What is the purpose of a retaining wall, and how is it designed?

Answered: 1 week ago

Question

How do you determine the load-bearing capacity of a soil?

Answered: 1 week ago

Question

what is Edward Lemieux effect / Anomeric effect ?

Answered: 1 week ago