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 Oct 20, 2021

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	Sales value: (70,000*37) = 2,590,000
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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