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In: Accounting

The company is considering the purchase of machinery and equipment to set up a line to...

The company is considering the purchase of machinery and equipment to set up a line to produce a combination washer-dryer. They have given you the following information to analyze the project on a 5-year timeline:

  • Initial cash outlay is $150,000, no residual value.
  • Sales price is expected to be $2,250 per unit, with $595 per unit in labor expense and $795 per unit in materials.
  • Direct fixed costs are estimated to run $20,750 per month.
  • Cost of capital is 8%, and the required rate of return is 10%.
  • They will incur all operational costs in Year 1, though sales are expected to be 55% of break-even.
  • Break-even (considering only direct fixed costs) is expected to occur in Year 2.
  • Variable costs will increase 2% each year, starting in Year 3.
  • Sales are estimated to grow by 10%, 15%, and 20% for years 3 - 5.

They have asked you to calculate:

  • NPV
  • IRR

Solutions

Expert Solution

Calculation of Break even point

Calculation of NPV

Please give upvote rating also amd comment if any

ekkarill92 answered 2 years ago
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