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Nike is investing in new machinery. The discount rate is 10%, and the initial investment...

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Accounting

Nike is investing in new machinery. The discount rate is 10%, and the initial investment in equipment $12.5 million. The machinery's economic life is 25 years and the equipment will be depreciated on a straight-line basis over the project's life and has no salvage value. The following financial information is estimated for production from the machinery:

Sales price per shirt: $65 Sales price per pant: $115 Variable Costs per shirt: $2.75

Variable Costs per pant: $5.00 Fixed Costs of production per Year: $140,000 Tax Rate=21%

Number of shirts sold per year: 10,100 Number of pants sold per year: 9,750

Note: When calculating break-evens for each product type, view each product in isolation (e.g., for shirts, assume that all depreciation and costs are attributed to shirts and ignore all pant specific figures. This solves for a world where only shirts are produced and no pants are produced).

  1. What is the accounting break-even level for the production of a) shirts, and b) pants?

  2. What is the financial break-even level for the production of a) shirts, and b) pants?

  3. What is the base-cash cash flow of this project (i.e., accounting for both shirts and pants)?

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