Question

In: Finance

A new product requires an initial investment of $3.5 million and will be depreciated to an expected salvage of zero over 7 years.

A new product requires an initial investment of $3.5 million and will be depreciated to an expected salvage of zero over 7 years. The price of the new product is expected to be $35,000, and the variable cost per unit is $27,000. The fixed cost is $1.5 million. Assume that discount rate is 15%. Calculate accounting, cash, and financial break-evens.

Solutions

Expert Solution

jeff jeffy answered 2 years ago
Next > < Previous

Related Solutions

A project requires an initial investment of $1,000,000 and is depreciated straight-line to zero salvage over...
A project requires an initial investment of $1,000,000 and is depreciated straight-line to zero salvage over its 10-year life. The project produces items that sell for $1,000 each, with variable costs of $700 per unit. Fixed costs are $350,000 per year.  What is the accounting break-even quantity? o Q = (FC + D)/(P – v)  What is the operating cash flow at accounting break-even? o OCF= [PQ - vQ – FC – D] + D  What is...
A project requires an initial investment of $1,000,000 and is depreciated straight-line to zero salvage over...
A project requires an initial investment of $1,000,000 and is depreciated straight-line to zero salvage over its 10-year life. The project produces items that sell for $1,000 each, with variable costs of $700 per unit. Fixed costs are $350,000 per year. What is the accounting break-even quantity and financial break-even quantity (assume 10% as discount rate)? I'm not too sure how to go about this question. Any help?
A project requires an initial investment of $1,000,000 and is depreciated straight-line to zero salvage over...
A project requires an initial investment of $1,000,000 and is depreciated straight-line to zero salvage over its 10-year life. The project produces items that sell for $1,000 each, with variable costs of $700 per unit. Fixed costs are $350,000 per year. What is the financial break-even quantity assuming 10% as discount rate?
A project requires an initial investment of $1,000,000 and is depreciated straight-line to zero salvage over...
A project requires an initial investment of $1,000,000 and is depreciated straight-line to zero salvage over its 10-year life. The project produces items that sell for $1,000 each, with variable costs of $700 per unit. Fixed costs are $350,000 per year. 1) What is the accounting break-even quantity? What is theoperating cash flow at accounting break-even? What is degree of operating leverage (DOL) at that output level?And what does the DOL indicate? 2) What is the cash flow break-even quantity?...
Project K requires an initial investment of $450,000, is expected to last for 7 years, and...
Project K requires an initial investment of $450,000, is expected to last for 7 years, and is expected to produce after-tax net cash flows of $92,000 per year. Project L requires $3000 initial investment and produces a net cash flow of $800 per year. The discount rate for both projects is 8%. a) What is the NPV of each project? b) What is the Profitability Index of each project? c) Which one will you choose?
A project requires an initial investment of $500,000 depreciated straight-line to $0 in 10 years. The...
A project requires an initial investment of $500,000 depreciated straight-line to $0 in 10 years. The investment is expected to generate annual sales of $400,000 with annual costs of $120,000 for 10 years. Assume a tax rate of 35% and a discount rate of 12%. What is the NPV of the project?
A project requires an initial investment of $320,000 depreciated straight-line to $0 in 24 years. The...
A project requires an initial investment of $320,000 depreciated straight-line to $0 in 24 years. The investment is expected to generate annual sales of $90,000 with annual costs of $45,000 for 30 years. Assume a tax rate of 30% and a discount rate of 20%. What is the NPV of the project?
A project requires an initial investment of $2,400,000 depreciated straight-line to $0 in 10 years. The...
A project requires an initial investment of $2,400,000 depreciated straight-line to $0 in 10 years. The investment is expected to generate annual sales of $700,000 with annual costs of $450,000 for 20 years. Assume a tax rate of 30% and a discount rate of 10%. What is the NPV of the project? No excel spreadsheet please.
A company is developing a new product. The development of the product requires an initial investment...
A company is developing a new product. The development of the product requires an initial investment of $160,000 with further investments of $90,000 in year 1, $60,000 in year 2 and $10,000 in year 3. The company will launch the product on the market in year 3 and the company expects annual profits of $60,000 from year 3 to year 7. At the end of year 7, the company expects to terminate the production line and sell it to a...
Product A Product B Initial Investment: Cost of Equipment (zero salvage value) $170,000 $380,000 Annual Revenues...
Product A Product B Initial Investment: Cost of Equipment (zero salvage value) $170,000 $380,000 Annual Revenues and costs: Sales Revenue: $250,000 $350,000 Variable Expenses: $120,000 $170,000 Depreciation Expense: $34,000 $76,000 Fixed out-of-pocket operating costs: $70,000 $50,000 Item Periods Amount of Cash Flows Product A: Purchase of equipment $170,000 Net annual cash inflows (above) $60,000 Net Present Value: Product B: Purchase of equipment $380,000 Net annual cash inflows (above) $130,000 Net Present Value: What would the amount of cash flows be?
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT