Consider a project to supply Detroit with 25,000 tons of machinescrews annually for automobile production. You will need an initial$4,500,000 investment in threading equipment to get the projectstarted; the project will last for 5 years. The accountingdepartment estimates that annual fixed costs will be $1,075,000 andthat variable costs should be $200 per ton; accounting willdepreciate the initial fixed asset investment straight-line to zeroover the 5-year project life. It also estimates a salvage value of$450,000 after dismantling costs. The marketing departmentestimates that the automakers will let the contract at a sellingprice of $302 per ton. The engineering department estimates youwill need an initial net working capital investment of $430,000.You require a return of 11 percent and face a tax rate of 22percent on this project. Calculate the accounting, cash, andfinancial break-even quantities.
