Question

A new company to produce state-of-the-art car stereo systems is being considered by Jagger Enterprises. The sales price would be set at 1.5 times the variable cost per unit; the VC/unit is estimated to be $2.50; and fixed costs are estimated at $120,000. What sales volume would be required in order to break even, i.e., to have an EBIT of zero for the stereo business? (4 points)  

Your firm is trying to decide between two different projects. Your boss has asked you to use the MIRR criteria at the cost of capital of 13%. Which of these projects will you choose? (6 points)

Year Project A Project B

0 -$100,000 -$75,000

1 $125,000 $15,000

2 $100,000 $50,000

3 $75,000 $75,000

4 $50,000 $100,000

5 $15,000 $150,000

Answer 1