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Homework answers / question archive / Question 1) Initial cost $644,000   Project life 8   Units sales 70,000 Sales value: (70,000*37)                       = 2,590,000 Price/unit $37

Question 1) Initial cost $644,000   Project life 8   Units sales 70,000 Sales value: (70,000*37)                       = 2,590,000 Price/unit $37

Finance

Question 1)

Initial cost

$644,000

 

Project life

8

 

Units sales

70,000

Sales value: (70,000*37)

                      = 2,590,000

Price/unit

$37.00

Variable cost/unit

$21.00

Total variable cost:

70,000*21 = 1,470,000

Fixed costs

$725,000

 

Tax rate

35%

 

Required return

15%

 

New quantity for calculate

71,000

 

Projected sales change

(500)

 

New VC for calculation

$22.00

 

Projected VC change

$(1.00)

 

 

Question 2)

Machine cost       $ 390,000

Life of machine       5

Price per unit          $ 25

Variable cost per unit            $ 11

Fixed costs                      $ 280,000

Tax rate                        34%

Discount rate              12%

II = PVIFA{Deprec.+ (1−t C )[(CM ´Q)−(FC + Deprec.)]}

 

Question 3)

Units sold per year

9,000

Net cash flow per unit

$ 35

Annual operating cash flow

$ 315,000

Initial investment

$ 1,350,000

Life time

10

Discount rate

16%

Abandonment value

$ 950,000

 

Question 4)

Units per year if successful

11,000

Units per year if unsuccessful

4,000

Net cash flow per unit

$ 35

Successful operating cash flow

$ 385,000

Initial operating cash flow

$ 315,000

Initial investment

$ 1,350,000

Life time

10

Discount rate

16%

Abandonment value

$ 950,000

 

 

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