Adequate information: Salvage value = $150,000 Cost of equipment (C) = $2,100,000 Fixed cost (FC) = $650,000 Net working capital (NWC) = $325,000 Price per unit = $20 Variable cost per unit (V) = $9.45 Useful life of equipment = 5 years Sales units (Q) = 145,000 Tax rate (T) = 21% or 0.21 Required rate of return (r) = 11% or 0.11 To compute: The net present value (NPV) of the project. The net present value (NPV) of the project, if the bid price has been changed. The net present value (NPV) of the project, if the number of cartons sold changes. The net present value (NPV) of the project, if the cost of the cartons changes. Introduction: Net present value is defined as the summation of the present value of cash inflows in each period minus the summation of the present value of cash outflow . In the case of the mutually exclusive project, the project having the higher net present value should be selected.

Question

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Answer 1

Question

Chapter 6, Problem 35QAP

a.

Summary Introduction

Adequate information:

Salvage value = $150,000

Cost of equipment (C) = $2,100,000

Fixed cost (FC) = $650,000

Net working capital (NWC) = $325,000

Price per unit = $20

Variable cost per unit (V) = $9.45

Useful life of equipment = 5 years

Sales units (Q) = 145,000

Tax rate (T) = 21% or 0.21

Required rate of return (r) = 11% or 0.11

To compute:

The net present value (NPV) of the project.

The net present value (NPV) of the project, if the bid price has been changed.

The net present value (NPV) of the project, if the number of cartons sold changes.

The net present value (NPV) of the project, if the cost of the cartons changes.

Introduction: Net present value is defined as the summation of the present value of cash inflows in each period minus the summation of the present value of cash outflow. In the case of the mutually exclusive project, the project having the higher net present value should be selected.

b.

Summary Introduction

Adequate information:

Salvage value = $150,000

Cost of equipment (C) = $2,100,000

Fixed cost (FC) = $650,000

Net working capital (NWC) = $325,000

Price per unit = $20

Variable cost per unit (V) = $9.45

Useful life of equipment = 5 years

Tax rate (T) = 21% or 0.21

Required rate of return (r) = 11% or 0.11

To compute: The quantity of cartons per year if it is a breakeven scenario

Introduction: The decision criteria of net present value are that in the case of a single project, if the net present value of the project is zero or positive, the project should be accepted, otherwise rejected.

c.

Summary Introduction

Adequate information:

Salvage value = $150,000

Cost of equipment (C) = $2,100,000

Net working capital (NWC) = $325,000

Price per unit = $20

Variable cost per unit (V) = $9.45

Useful life of equipment = 5 years

Sales units (Q) = 145,000

Tax rate (T) = 21% or 0.21

Required rate of return (r) = 11% or 0.11

To compute: Fixed costs

Introduction: Total fixed costs do not change with the change in activity base or unit. In the other words, it remains the same at all levels of production. For instance, rent, interest on loans, depreciation, and so on. These costs have to be paid whether production occurs or not.

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Answer 2

Question

Chapter 6, Problem 35QAP

a.

Summary Introduction

Adequate information:

Salvage value = $150,000

Cost of equipment (C) = $2,100,000

Fixed cost (FC) = $650,000

Net working capital (NWC) = $325,000

Price per unit = $20

Variable cost per unit (V) = $9.45

Useful life of equipment = 5 years

Sales units (Q) = 145,000

Tax rate (T) = 21% or 0.21

Required rate of return (r) = 11% or 0.11

To compute:

The net present value (NPV) of the project.

The net present value (NPV) of the project, if the bid price has been changed.

The net present value (NPV) of the project, if the number of cartons sold changes.

The net present value (NPV) of the project, if the cost of the cartons changes.

Introduction: Net present value is defined as the summation of the present value of cash inflows in each period minus the summation of the present value of cash outflow. In the case of the mutually exclusive project, the project having the higher net present value should be selected.

b.

Summary Introduction

Adequate information:

Salvage value = $150,000

Cost of equipment (C) = $2,100,000

Fixed cost (FC) = $650,000

Net working capital (NWC) = $325,000

Price per unit = $20

Variable cost per unit (V) = $9.45

Useful life of equipment = 5 years

Tax rate (T) = 21% or 0.21

Required rate of return (r) = 11% or 0.11

To compute: The quantity of cartons per year if it is a breakeven scenario

Introduction: The decision criteria of net present value are that in the case of a single project, if the net present value of the project is zero or positive, the project should be accepted, otherwise rejected.

c.

Summary Introduction

Adequate information:

Salvage value = $150,000

Cost of equipment (C) = $2,100,000

Net working capital (NWC) = $325,000

Price per unit = $20

Variable cost per unit (V) = $9.45

Useful life of equipment = 5 years

Sales units (Q) = 145,000

Tax rate (T) = 21% or 0.21

Required rate of return (r) = 11% or 0.11

To compute: Fixed costs

Introduction: Total fixed costs do not change with the change in activity base or unit. In the other words, it remains the same at all levels of production. For instance, rent, interest on loans, depreciation, and so on. These costs have to be paid whether production occurs or not.

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Answer 3

Question

Chapter 6, Problem 35QAP

a.

Summary Introduction

Adequate information:

Salvage value = $150,000

Cost of equipment (C) = $2,100,000

Fixed cost (FC) = $650,000

Net working capital (NWC) = $325,000

Price per unit = $20

Variable cost per unit (V) = $9.45

Useful life of equipment = 5 years

Sales units (Q) = 145,000

Tax rate (T) = 21% or 0.21

Required rate of return (r) = 11% or 0.11

To compute:

The net present value (NPV) of the project.

The net present value (NPV) of the project, if the bid price has been changed.

The net present value (NPV) of the project, if the number of cartons sold changes.

The net present value (NPV) of the project, if the cost of the cartons changes.

Introduction: Net present value is defined as the summation of the present value of cash inflows in each period minus the summation of the present value of cash outflow. In the case of the mutually exclusive project, the project having the higher net present value should be selected.

b.

Summary Introduction

Adequate information:

Salvage value = $150,000

Cost of equipment (C) = $2,100,000

Fixed cost (FC) = $650,000

Net working capital (NWC) = $325,000

Price per unit = $20

Variable cost per unit (V) = $9.45

Useful life of equipment = 5 years

Tax rate (T) = 21% or 0.21

Required rate of return (r) = 11% or 0.11

To compute: The quantity of cartons per year if it is a breakeven scenario

Introduction: The decision criteria of net present value are that in the case of a single project, if the net present value of the project is zero or positive, the project should be accepted, otherwise rejected.

c.

Summary Introduction

Adequate information:

Salvage value = $150,000

Cost of equipment (C) = $2,100,000

Net working capital (NWC) = $325,000

Price per unit = $20

Variable cost per unit (V) = $9.45

Useful life of equipment = 5 years

Sales units (Q) = 145,000

Tax rate (T) = 21% or 0.21

Required rate of return (r) = 11% or 0.11

To compute: Fixed costs

Introduction: Total fixed costs do not change with the change in activity base or unit. In the other words, it remains the same at all levels of production. For instance, rent, interest on loans, depreciation, and so on. These costs have to be paid whether production occurs or not.

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Answer 4

Question

Chapter 6, Problem 35QAP

a.

Summary Introduction

Adequate information:

Salvage value = $150,000

Cost of equipment (C) = $2,100,000

Fixed cost (FC) = $650,000

Net working capital (NWC) = $325,000

Price per unit = $20

Variable cost per unit (V) = $9.45

Useful life of equipment = 5 years

Sales units (Q) = 145,000

Tax rate (T) = 21% or 0.21

Required rate of return (r) = 11% or 0.11

To compute:

The net present value (NPV) of the project.

The net present value (NPV) of the project, if the bid price has been changed.

The net present value (NPV) of the project, if the number of cartons sold changes.

The net present value (NPV) of the project, if the cost of the cartons changes.

Introduction: Net present value is defined as the summation of the present value of cash inflows in each period minus the summation of the present value of cash outflow. In the case of the mutually exclusive project, the project having the higher net present value should be selected.

b.

Summary Introduction

Adequate information:

Salvage value = $150,000

Cost of equipment (C) = $2,100,000

Fixed cost (FC) = $650,000

Net working capital (NWC) = $325,000

Price per unit = $20

Variable cost per unit (V) = $9.45

Useful life of equipment = 5 years

Tax rate (T) = 21% or 0.21

Required rate of return (r) = 11% or 0.11

To compute: The quantity of cartons per year if it is a breakeven scenario

Introduction: The decision criteria of net present value are that in the case of a single project, if the net present value of the project is zero or positive, the project should be accepted, otherwise rejected.

c.

Summary Introduction

Adequate information:

Salvage value = $150,000

Cost of equipment (C) = $2,100,000

Net working capital (NWC) = $325,000

Price per unit = $20

Variable cost per unit (V) = $9.45

Useful life of equipment = 5 years

Sales units (Q) = 145,000

Tax rate (T) = 21% or 0.21

Required rate of return (r) = 11% or 0.11

To compute: Fixed costs

Introduction: Total fixed costs do not change with the change in activity base or unit. In the other words, it remains the same at all levels of production. For instance, rent, interest on loans, depreciation, and so on. These costs have to be paid whether production occurs or not.

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Answer 5

Chapter 6, Problem 35QAP

a.

Summary Introduction

Adequate information:

Salvage value = $150,000

Cost of equipment (C) = $2,100,000

Fixed cost (FC) = $650,000

Net working capital (NWC) = $325,000

Price per unit = $20

Variable cost per unit (V) = $9.45

Useful life of equipment = 5 years

Sales units (Q) = 145,000

Tax rate (T) = 21% or 0.21

Required rate of return (r) = 11% or 0.11

To compute:

The net present value (NPV) of the project.

The net present value (NPV) of the project, if the bid price has been changed.

The net present value (NPV) of the project, if the number of cartons sold changes.

The net present value (NPV) of the project, if the cost of the cartons changes.

Introduction: Net present value is defined as the summation of the present value of cash inflows in each period minus the summation of the present value of cash outflow. In the case of the mutually exclusive project, the project having the higher net present value should be selected.

b.

Summary Introduction

Adequate information:

Salvage value = $150,000

Cost of equipment (C) = $2,100,000

Fixed cost (FC) = $650,000

Net working capital (NWC) = $325,000

Price per unit = $20

Variable cost per unit (V) = $9.45

Useful life of equipment = 5 years

Tax rate (T) = 21% or 0.21

Required rate of return (r) = 11% or 0.11

To compute: The quantity of cartons per year if it is a breakeven scenario

Introduction: The decision criteria of net present value are that in the case of a single project, if the net present value of the project is zero or positive, the project should be accepted, otherwise rejected.

c.

Summary Introduction

Adequate information:

Salvage value = $150,000

Cost of equipment (C) = $2,100,000

Net working capital (NWC) = $325,000

Price per unit = $20

Variable cost per unit (V) = $9.45

Useful life of equipment = 5 years

Sales units (Q) = 145,000

Tax rate (T) = 21% or 0.21

Required rate of return (r) = 11% or 0.11

To compute: Fixed costs

Introduction: Total fixed costs do not change with the change in activity base or unit. In the other words, it remains the same at all levels of production. For instance, rent, interest on loans, depreciation, and so on. These costs have to be paid whether production occurs or not.

Answer 6

Chapter 6, Problem 35QAP

a.

Summary Introduction

Adequate information:

Salvage value = $150,000

Cost of equipment (C) = $2,100,000

Fixed cost (FC) = $650,000

Net working capital (NWC) = $325,000

Price per unit = $20

Variable cost per unit (V) = $9.45

Useful life of equipment = 5 years

Sales units (Q) = 145,000

Tax rate (T) = 21% or 0.21

Required rate of return (r) = 11% or 0.11

To compute:

The net present value (NPV) of the project.

The net present value (NPV) of the project, if the bid price has been changed.

The net present value (NPV) of the project, if the number of cartons sold changes.

The net present value (NPV) of the project, if the cost of the cartons changes.

Introduction: Net present value is defined as the summation of the present value of cash inflows in each period minus the summation of the present value of cash outflow. In the case of the mutually exclusive project, the project having the higher net present value should be selected.

Answer 7

Chapter 6, Problem 35QAP

a.

Summary Introduction

Adequate information:

Salvage value = $150,000

Cost of equipment (C) = $2,100,000

Fixed cost (FC) = $650,000

Net working capital (NWC) = $325,000

Price per unit = $20

Variable cost per unit (V) = $9.45

Useful life of equipment = 5 years

Sales units (Q) = 145,000

Tax rate (T) = 21% or 0.21

Required rate of return (r) = 11% or 0.11

To compute:

The net present value (NPV) of the project.

The net present value (NPV) of the project, if the bid price has been changed.

The net present value (NPV) of the project, if the number of cartons sold changes.

The net present value (NPV) of the project, if the cost of the cartons changes.

Introduction: Net present value is defined as the summation of the present value of cash inflows in each period minus the summation of the present value of cash outflow. In the case of the mutually exclusive project, the project having the higher net present value should be selected.

Answer 8

b.

Summary Introduction

Adequate information:

Salvage value = $150,000

Cost of equipment (C) = $2,100,000

Fixed cost (FC) = $650,000

Net working capital (NWC) = $325,000

Price per unit = $20

Variable cost per unit (V) = $9.45

Useful life of equipment = 5 years

Tax rate (T) = 21% or 0.21

Required rate of return (r) = 11% or 0.11

To compute: The quantity of cartons per year if it is a breakeven scenario

Introduction: The decision criteria of net present value are that in the case of a single project, if the net present value of the project is zero or positive, the project should be accepted, otherwise rejected.

Answer 9

b.

Summary Introduction

Adequate information:

Salvage value = $150,000

Cost of equipment (C) = $2,100,000

Fixed cost (FC) = $650,000

Net working capital (NWC) = $325,000

Price per unit = $20

Variable cost per unit (V) = $9.45

Useful life of equipment = 5 years

Tax rate (T) = 21% or 0.21

Required rate of return (r) = 11% or 0.11

To compute: The quantity of cartons per year if it is a breakeven scenario

Introduction: The decision criteria of net present value are that in the case of a single project, if the net present value of the project is zero or positive, the project should be accepted, otherwise rejected.

Answer 10

c.

Summary Introduction

Adequate information:

Salvage value = $150,000

Cost of equipment (C) = $2,100,000

Net working capital (NWC) = $325,000

Price per unit = $20

Variable cost per unit (V) = $9.45

Useful life of equipment = 5 years

Sales units (Q) = 145,000

Tax rate (T) = 21% or 0.21

Required rate of return (r) = 11% or 0.11

To compute: Fixed costs

Introduction: Total fixed costs do not change with the change in activity base or unit. In the other words, it remains the same at all levels of production. For instance, rent, interest on loans, depreciation, and so on. These costs have to be paid whether production occurs or not.

Answer 11

c.

Summary Introduction

Adequate information:

Salvage value = $150,000

Cost of equipment (C) = $2,100,000

Net working capital (NWC) = $325,000

Price per unit = $20

Variable cost per unit (V) = $9.45

Useful life of equipment = 5 years

Sales units (Q) = 145,000

Tax rate (T) = 21% or 0.21

Required rate of return (r) = 11% or 0.11

To compute: Fixed costs

Introduction: Total fixed costs do not change with the change in activity base or unit. In the other words, it remains the same at all levels of production. For instance, rent, interest on loans, depreciation, and so on. These costs have to be paid whether production occurs or not.

Answer 12

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Answer 13

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Answer 14

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Answer 15

Ch. 6 - Opportunity Cost In the context of capital...Ch. 6 - Prob. 2CQ Ch. 6 - Incremental Cash Flows Your company currently...Ch. 6 - Depreciation Given the choice, would a firm prefer...Ch. 6 - Prob. 5CQ Ch. 6 - Prob. 6CQ Ch. 6 - Equivalent Annual Cost When is EAC analysis...Ch. 6 - Prob. 8CQ Ch. 6 - Capital Budgeting Considerations A major college...Ch. 6 - To answer the next three questions, refer to the...

Solution Summary: The author calculates the net present value (NPV) of the project, if the bid price has been changed.

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Chapter 6 Solutions