A corporation needs a machine that costs $1 million and net working capital of $100,000 for...

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A corporation needs a machine that costs $1 million and networking capital of $100,000 for an investment project. Assume thedepreciation is straight-line to zero over the 5 year life of themachine. The project has a 4 year life and the machine will have anexpected market value of $300,000 at the end of the project. Salesare expected to be 70,000 units per year. Price per unit isexpected to be $50, variable costs per unit is expected to be $34and fixed costs are expected to be $800,000 per year. The tax rateis expected to be 25% and the company requires a 10% return on thisproject. What is the numerical break even quantity? How much does a$2 decrease in the projected price per unit change NPV?

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Base case NPV is calculated as below Operating cash flow OCF each year income after tax depreciationIn year 4 the entire See Answer

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A corporation needs a machine that costs $1 million and networking capital of $100,000 for an investment project. Assume thedepreciation is straight-line to zero over the 5 year life of themachine. The project has a 4 year life and the machine will have anexpected market value of $300,000 at the end of the project. Salesare expected to be 70,000 units per year. Price per unit isexpected to be $50, variable costs per unit is expected to be $34and fixed costs are expected to be $800,000 per year. The tax rateis expected to be 25% and the company requires a 10% return on thisproject. What is the numerical break even quantity? How much does a$2 decrease in the projected price per unit change NPV?