Question
In: Finance
The Federation Inc is considering a new shuttle project. The information below is provided and we...
The Federation Inc is considering a new shuttle project. The information below is provided and we have been asked to determine the NPV break-even level of unit sales for a year. Purchase price of new equipment = $502,000. Shipping and installation costs for the new equipment = $18,000. The expansion will be financed half with equity and half with debt. The interest rate on the debt = 8% with principal due in full in exactly 4 years. Variable cost per unit = $51. Sales price per unit = $89. Annual fixed operating costs excluding depreciation = $140,000. Unit sales are assumed to be the same each year. Straight-line depreciation will be taken over the 6 year life of the project. The equipment will be depreciated so that book value equals expected salvage value at the end of the project. Working capital of $133,000 is required up front and an additional $60,000 of working capital is needed at the end of year one. Tax rate = 34%. Required rate of return (RRR) = 11%. Salvage value of the new equipment in 6 years = $63,000. (Answer in units, unrounded to whole units, keeping 2 decimal places).
Solutions
Expert Solution
Using Solver, break-even sales = 8,025.60 units
If the units are rounded off, the answer will be 8,026 per annum.
jeff jeffy answered 2 years agoRelated Solutions
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