Martin Enterprises needs someone to supply it with 142,000 cartons of machine screws per year to...

70.2K

Verified Solution

Question

Finance

Martin Enterprises needs someone to supply it with 142,000cartons of machine screws per year to support its manufacturingneeds over the next five years, and you’ve decided to bid on thecontract. It will cost you $995,000 to install the equipmentnecessary to start production; you’ll depreciate this coststraight-line to zero over the project’s life. You estimate that,in five years, this equipment can be salvaged for $136,000. Yourfixed production costs will be $570,000 per year, and your variableproduction costs should be $19.05 per carton. You also need aninitial investment in net working capital of $124,000. Assume yourtax rate is 22 percent and you require a return of 11 percent onyour investment. a. Assuming that the price per carton is $29.40,what is the NPV of this project? (Do not round intermediatecalculations and round your answer to 2 decimal places, e.g.,32.16.) b. Assuming that the price per carton is $29.40, find thequantity of cartons per year you can supply and still break even.(Do not round intermediate calculations and round your answer tothe nearest whole number, e.g., 32.) c. Assuming that the price percarton is $29.40, find the highest level of fixed costs you couldafford each year and still break even.

Answer & Explanation Solved by verified expert

3.9 Ratings (557 Votes)

a NPV 177300252 Formula Year n 0 1 2 3 4 5 Initial investment II 995000 Number of cartons u 142000 142000 142000 142000 142000 Price per carton p 2940 2940 2940 2940 2940 Variable cost per carton vc 1905 1905 1905 1905 1905 up Revenue R 4174800 4174800 See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

Martin Enterprises needs someone to supply it with 142,000cartons of machine screws per year to support its manufacturingneeds over the next five years, and you’ve decided to bid on thecontract. It will cost you $995,000 to install the equipmentnecessary to start production; you’ll depreciate this coststraight-line to zero over the project’s life. You estimate that,in five years, this equipment can be salvaged for $136,000. Yourfixed production costs will be $570,000 per year, and your variableproduction costs should be $19.05 per carton. You also need aninitial investment in net working capital of $124,000. Assume yourtax rate is 22 percent and you require a return of 11 percent onyour investment. a. Assuming that the price per carton is $29.40,what is the NPV of this project? (Do not round intermediatecalculations and round your answer to 2 decimal places, e.g.,32.16.) b. Assuming that the price per carton is $29.40, find thequantity of cartons per year you can supply and still break even.(Do not round intermediate calculations and round your answer tothe nearest whole number, e.g., 32.) c. Assuming that the price percarton is $29.40, find the highest level of fixed costs you couldafford each year and still break even.