Question

1.

Project with which of the following characteristic(s) provide value and thus positive NPVs to firms?

A

Economies of Scale

B

Product differentiation

C

Cost advantages

D

Access to distribution channels

E

Favorable governmental or regulatory environments

2.

Fill in the Blanks

Your firm pays $3,000 per month in fixed costs. You also pay $15 per unit to produce your product. What is your total cost if you produce 1,000 units?

What if you produce 5,000 units?

3.

The Motor Works is considering an expansion project with estimated fixed costs of $127,000, depreciation of $16,900, variable costs per unit of $41.08, and an estimated sales price of $79.90 per unit. How many units must the firm sell to break even on a cash basis?

Answer 1

All the below characteristics provide value and positive NPV to firms:

A.Economies of scale

B Product differentiation

C. cost advantages

D access to distribution channels

E favorable governmental or regulatory environments.

2.If 1000 units is produced =$18,000

if 5000 units are produced = $78,000

working: for 1000 units = (1000 units *$15) + 3000 =>$18,000

for 5000 units = (5000*15)+3000=>$78,000.

3.cash fixed costs = fixed costs - depreciation

=>127,000-16,900

=>$110,100.

contribution per unit =$79.90 -41.08

=>$38.82.

units to break even on cash basis = fixed costs / contribution per unit.

=>$110,100 / 38.82

=>2,836 units.