Question

1. A company is considering a 5-year project to open a new product line. A new machine with an installed cost of $120,000 would be required to manufacture their new product, which is estimated to produce sales of $40,000 in new revenues each year. The cost of goods sold to produce these sales (not including depreciation) is estimated at 49% of sales, and the tax rate at this firm is 27%. If straight-line depreciation is used to calculate annual depreciation, what is the estimated annual operating cash flow from this project each year? (Answer to the nearest dollar.)

2. A company is considering a 3-year project that requires an initial installed equipment cost of $15,000. The project engineer has estimated that the operating cash flows will be $5,000 in year 1, $7,000 in year 2, and $9,000 in year 3. The new machine will also require a parts inventory of $3,000 at the beginning of the project (assume this inventory can be sold for cost at the end of the project). It is also estimated that the equipment can be sold as salvage for an after tax salvage cash flow of $4,000 at the end of the project. If the tax rate is 27% and the required rate of return is 10%, what is the net present value (NPV) of this project? (Answer to the nearest dollar.)

3. A company is considering a 5-year project that opens a new product line and requires an initial outlay of $82,000. The assumed selling price is $98 per unit, and the variable cost is $68 per unit. Fixed costs not including depreciation are $17,000 per year. Assume depreciation is calculated using stright-line down to zero salvage value. If the required rate of return is 14% per year, what is the accounting break-even point? (Answer to the nearest whole unit.)

Answer 1