Question
In: Finance
A company is considering an investment in a new product with a 10-year horizon (product will...
A company is considering an investment in a new product with a
10-year horizon (product will be sold for 10 years). The upfront
investment is $7 million and it is assumed to depreciate on a
straight-line basis for 10 years, with no residual value. Fixed
costs are assumed to be $500,000 per year. The company estimates
variable cost per unit (v) to be $75 and expects to sell each unit
for $315. There are no taxes and the required rate of return is 22%
per year. Assume that the investment would occur today, and all
future cash-flows will occur at the end of each year beginning in
one year.
For the following questions, give all answers ROUNDED
UP to the next highest WHOLE unit (ie 421.2 would be
rounded to 422):
What is the accounting breakeven quantity?
What is cash break even quantity?
Solutions
jeff jeffy answered 1 year agoRelated Solutions
Suppose that a company is considering an investment in a new product with a 5-year horizon...
Suppose that a company is considering an investment in a new
product with a 5-year horizon (product will be sold for 5 years).
The upfront investment is $1 million and it is assumed to
depreciate on a straight-line basis for 5 years, with no residual
value. Fixed costs are assumed to be $50,000 per year. The company
estimates the variable cost per unit (v) to be $5 and expects to
sell each unit for $15. There are no taxes and...
A company is considering an investment of $600,000 in a new product line. The investment will...
A company is considering an investment of $600,000 in a new
product line. The investment will be made only if it will result in
a rate of return of 20% per year or higher. If the net cash flow is
expected to be between $150,000 and $250,000 per year for 6 years.
Use present worth analysis to determine if the decision to invest
is sensitive to the projected range of revenue. Show how you
arrived at your decision
2. A company is considering an investment of $600,000 in a new product line. The investment...
2. A company is considering an investment of $600,000 in a new
product line. The investment will be made only if it will result in
a rate of return of 20% per year or higher. If the net cash flow is
expected to be between $150,000 and $250,000 per year for 6 years.
Use present worth analysis to determine if the decision to invest
is sensitive to the projected range of revenue. Show how you
arrived at your decision. Please...
Suppose that an investor with a 5 year investment horizon is considering purchasing a 7 year,...
Suppose that an investor with a 5 year investment horizon is
considering purchasing a 7 year, 9% coupon bond selling at par. The
investor expects that he can reinvest the coupon at an annual
interest rate of 9.4% and that at the end of the investment horizon
5 year bond will be selling to offer a yield to maturity of 11.2%.
What is the total return for this bond?
If an investor has a 6 year investment horizon and chooses a bond with a 10...
If an investor has a 6 year investment horizon and chooses a
bond with a 10 year duration then if interest rates increase
then
A) the bond's sale price increase will be more than the lost
reinvestment income.
B) the bond's sale price drop will be more than the extra
reinvestment income.
C) the bond's sale price drop will be less than the extra
reinvestment income.
D) the bond's sale price increase will be less than the lost
reinvestment income.
Assume an investor with a 5 year investment horizon is considering purchasing an 8 year semiannual...
Assume an investor with a 5 year investment horizon is
considering purchasing an 8 year semiannual 5% coupon bond that is
currently selling at 99. The investor expects to reinvest the
coupons at 2% and that the bond will be selling to offer a yield to
maturity of 6% in five years. What is the expected total return for
this bond? Express your answer on a bond-equivalent basis and on an
effective annual rate basis.
. Suppose that an investor with a five-year investment horizon is considering purchasing a seven-year 9%...
. Suppose that an investor with a five-year investment
horizon is considering purchasing a seven-year 9% coupon bond
selling at par. The investor expects that he can reinvest the
coupon payments at an annual interest rate of 9.4% and that at the
end of the investment horizon two-year bonds will be selling to
offer a yield to maturity of 11.2%. What is the five-year total
return for this bond?
Suppose an investor with a 7-year investment horizon is considering the purchase of a 4.50% APR,...
Suppose an investor with a 7-year investment horizon is
considering the purchase of a 4.50% APR, monthly payment, mortgage
with 22 years (264 months) remaining until maturity. The mortgage
currently has an outstanding balance of $245,000 and is selling to
offer a YTM of 4.8% on the secondary market. The investor expects
to be able to reinvest the first 36 monthly cashflows at 4.8% (over
their entire reinvestment interval), but expects to be able to
reinvest the last 48 monthly...
Suppose an investor with a 7-year investment horizon is considering the purchase of a 4.50% APR,...
Suppose an investor with a 7-year investment horizon is
considering the purchase of a 4.50% APR, monthly payment, mortgage
with 22 years (264 months) remaining until maturity. The mortgage
currently has an outstanding balance of $245,000 and is selling to
offer a YTM of 4.8% on the secondary market. The investor expects
to be able to reinvest the first 36 monthly cashflows at 4.8% (over
their entire reinvestment interval), but expects to be able to
reinvest the last 48 monthly...
The company is considering adding a new product line that will require an investment of $1,454,000....
The company is considering adding a new product line that will
require an investment of $1,454,000.
Management estimates that this
investment will have a 10-year life and generate future net
cash
inflows of $310,000 the first year,
$280,000 the second year and $240,000 each year thereafter
for
eight years. Compute the payback
period. (Hint: the payback period does not use the time
value
of money charts.)
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