Homework Help is Here – Start Your Trial Now!
Business
Economics
Suppose you are considering an investment project that requires $800,000, has a six-year life, and has a salvage value of $100,000. Sales volume is projected to be 65,000 units per year. Price per unit is $63, variable cost per unit is $42, and fixed costs are $532,000 per year. The depreciation method is a five-year MACRS. The tax rate is 35% and you expect a 20% return on this investment. it MODO desisti

Suppose you are considering an investment project that requires $800,000, has a six-year life, and has a salvage value of $100,000. Sales volume is projected to be 65,000 units per year. Price per unit is $63, variable cost per unit is $42, and fixed costs are $532,000 per year. The depreciation method is a five-year MACRS. The tax rate is 35% and you expect a 20% return on this investment. it MODO desisti

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
See similar textbooks
icon
Related questions
Question

Answer quick please. Do not need full work

Suppose you are considering an investment project that requires $800,000, has a six-year life, and has a salvage value of $100,000. Sales volume is projected to be 65,000 units per year. Price per unit is $63, variable cost per unit is $42, and fixed costs are $532,000 per year. The depreciation method is a five-year MACRS. The tax rate is 35% and you expect a 20% return on this investment. Click the icon to view the MACRS depreciation schedules. Click the icon to view the interest factors for discrete compounding when i = 20% per year. (a) Determine the break-even sales volume. The break-even sales volume is units. (Round to the nearest whole number.) (b) Calculate the cash flows of the base case over six years and its NPW. Fill in the table below. (Round to the nearest dollar.) Period 0 1 2 3 4 5 CO 6 Annual Net Cash Flow $ $ $ $ $ $ $ The NPW of the project based on its base-case scenario is $ (Round to the nearest dollar.) (c) If the sales price per unit increases to $400, what is the required break-even volume? The required break-even sales volume is units. (Round to the nearest whole number.) (d) Suppose the projections given for price, sales volume, variable costs, and fixed costs are all accurate to within ± 15%. What would be the NPW figures of the best-case and worst-case scenarios? The NPW of the project based on its best-case scenario is $ The NPW of the project based on its worst-case scenario is $. (Round to the nearest dollar.) (Round to the nearest dollar.)
Transcribed Image Text:Suppose you are considering an investment project that requires $800,000, has a six-year life, and has a salvage value of $100,000. Sales volume is projected to be 65,000 units per year. Price per unit is $63, variable cost per unit is $42, and fixed costs are $532,000 per year. The depreciation method is a five-year MACRS. The tax rate is 35% and you expect a 20% return on this investment. Click the icon to view the MACRS depreciation schedules. Click the icon to view the interest factors for discrete compounding when i = 20% per year. (a) Determine the break-even sales volume. The break-even sales volume is units. (Round to the nearest whole number.) (b) Calculate the cash flows of the base case over six years and its NPW. Fill in the table below. (Round to the nearest dollar.) Period 0 1 2 3 4 5 CO 6 Annual Net Cash Flow $ $ $ $ $ $ $ The NPW of the project based on its base-case scenario is $ (Round to the nearest dollar.) (c) If the sales price per unit increases to $400, what is the required break-even volume? The required break-even sales volume is units. (Round to the nearest whole number.) (d) Suppose the projections given for price, sales volume, variable costs, and fixed costs are all accurate to within ± 15%. What would be the NPW figures of the best-case and worst-case scenarios? The NPW of the project based on its best-case scenario is $ The NPW of the project based on its worst-case scenario is $. (Round to the nearest dollar.) (Round to the nearest dollar.)
W N N 1 2 3 4 01 5 60099 7 8 10 Single Payment Compound Present Amount Worth Factor Factor (F/P, i, N) (P/F, i, N) 1.2000 0.8333 1.4400 0.6944 1.7280 0.5787 2.0736 0.4823 2.4883 0.4019 2.9860 3.5832 4.2998 5.1598 6.1917 0.3349 0.2791 0.2326 0.1938 0.1615 Print Compound Amount Factor (F/A, i, N) 1.0000 2.2000 3.6400 5.3680 7.4416 9.9299 12.9159 16.4991 20.7989 25.9587 Equal Payment Series Sinking Fund Factor (A/F, i, N) 1.0000 0.4545 0.2747 0.1863 0.1344 0.1007 0.0774 0.0606 0.0481 0.0385 Done Present Worth Factor (P/A, i, N) 0.8333 1.5278 2.1065 2.5887 2.9906 J 3.3255 3.6046 3.8372 4.0310 4.1925 Capital Recovery Factor (A/P, i, N) 1.2000 0.6545 0.4747 0.3863 0.3344 0.3007 0.2774 0.2606 0.2481 0.2385 Year n 123456 2 N 7 8 9 10 11 12 13 Class Depreciation rate 3 200% 33.33 44.45 14.81* 7.41 5 200% 20.00 32.00 19.20 11.52* 11.52 5.76 14 15 16 17 18 19 20 21 * Year to switch from declining balance to straight line 7 200% 14.29 24.49 17.49 12.49 8.93* 8.92 8.93 4.46 10 200% 10.00 18.00 14.40 11.52 9.22 7.37 6.55* 6.55 6.56 6.55 3.28 15 150% 5.00 9.50 8.55 7.70 6.93 6.23 5.90* 5.90 5.91 5.90 5.91 5.90 5.91 5.90 5.91 2.95 20 150% 3.750 7.219 6.677 6.177 5.713 5.285 4.888 4.522 4.462* 4.461 4.462 4.461 4.462 4.461 4.462 4.461 4.462 4.461 4.462 4.461 2.231
Transcribed Image Text:W N N 1 2 3 4 01 5 60099 7 8 10 Single Payment Compound Present Amount Worth Factor Factor (F/P, i, N) (P/F, i, N) 1.2000 0.8333 1.4400 0.6944 1.7280 0.5787 2.0736 0.4823 2.4883 0.4019 2.9860 3.5832 4.2998 5.1598 6.1917 0.3349 0.2791 0.2326 0.1938 0.1615 Print Compound Amount Factor (F/A, i, N) 1.0000 2.2000 3.6400 5.3680 7.4416 9.9299 12.9159 16.4991 20.7989 25.9587 Equal Payment Series Sinking Fund Factor (A/F, i, N) 1.0000 0.4545 0.2747 0.1863 0.1344 0.1007 0.0774 0.0606 0.0481 0.0385 Done Present Worth Factor (P/A, i, N) 0.8333 1.5278 2.1065 2.5887 2.9906 J 3.3255 3.6046 3.8372 4.0310 4.1925 Capital Recovery Factor (A/P, i, N) 1.2000 0.6545 0.4747 0.3863 0.3344 0.3007 0.2774 0.2606 0.2481 0.2385 Year n 123456 2 N 7 8 9 10 11 12 13 Class Depreciation rate 3 200% 33.33 44.45 14.81* 7.41 5 200% 20.00 32.00 19.20 11.52* 11.52 5.76 14 15 16 17 18 19 20 21 * Year to switch from declining balance to straight line 7 200% 14.29 24.49 17.49 12.49 8.93* 8.92 8.93 4.46 10 200% 10.00 18.00 14.40 11.52 9.22 7.37 6.55* 6.55 6.56 6.55 3.28 15 150% 5.00 9.50 8.55 7.70 6.93 6.23 5.90* 5.90 5.91 5.90 5.91 5.90 5.91 5.90 5.91 2.95 20 150% 3.750 7.219 6.677 6.177 5.713 5.285 4.888 4.522 4.462* 4.461 4.462 4.461 4.462 4.461 4.462 4.461 4.462 4.461 4.462 4.461 2.231
Expert Solution
steps

Step by step

Solved in 5 steps with 2 images

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Knowledge Booster
Assets
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.
Recommended textbooks for you
ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
Economics
ISBN:
9780190931919
Author:
NEWNAN
Publisher:
Oxford University Press
Principles of Economics (12th Edition)
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education
SEE MORE TEXTBOOKS