Question

# Hewlett Packard is considering an investment project to make a portable printer. Suppose the project requires...

Hewlett Packard is considering an investment project to make a portable printer. Suppose the project requires initial investment of \$100,000. The company uses 14% after tax required rate of return. Fixed cash outlays are \$30,000 a year. The company expects the printer will sell for \$80 per unit and the variable cost to build a printer will be 25 percent of sales. The company does its analysis based on a 10-year project life. The salvage value of the project is zero and tax rate is 35%. The company uses Straight Line Depreciation Method.
What are annual cash flows needed to generate a net present value of \$0?
What are annual sales volume needed to generate a net present value of \$0?
What is the number of units of printer every year will generate a net present value of \$0?

Let X no of Units Sold

 Sales 80X Variable Cost .25*(80X) Depreciation 10000 Fixed Expense 30000 Profit before Tax 60X-10000-30000 Tax 35% (1-.35)*(60X-10000-30000) After Tax =39x?26000 Add Depreciation 10000 Annual Cash Flow 39X-16000 PV annuty factor 14% 5.2161 PV of Operating Cash Flow (39X-16000)*5.2161

Equation 0=-100000+(39X-16000)*5.2161

x=901.829592 =902 units

What are annual cash flows needed to generate a net present value of \$0?

 =39X-16000

=39*901.829-16000

=\$19171

What are annual sales volume needed to generate a net present value of \$0?

902*80=\$72160

What is the number of units of printer every year will generate a net present value of \$0?

902 units

#### Earn Coins

Coins can be redeemed for fabulous gifts.