A company sells Gizmos to consumers at a price of $90 per unit. The costs to produce Gizmos is $38 per unit. The company will sell 14,000 Gizmos to consumers each year. The fixed costs incurred each year will be $180,000. There is an initial investment to produce the goods of $3,800,000 which will be depreciated straight line over 11 year life of the investment to a salvage value of $0. The opportunity cost of capital is 9% and the tax rate is 31%. A. What is operating cash flow each year? B. Using an operating cash flow of 485,210.91 each year, what is the NPV of this project? C. Given a net present value of $-498, 047.3, should the company accept or reject this project? D. Find the net present value break - even level of units sold. Round your answer to the nearest whole unit
A company sells Gizmos to consumers at a price of $90 per unit. The costs to produce Gizmos is $38 per unit. The company will sell 14,000 Gizmos to consumers each year. The fixed costs incurred each year will be $180,000. There is an initial investment to produce the goods of $3,800,000 which will be depreciated straight line over 11 year life of the investment to a salvage value of $0. The opportunity cost of capital is 9% and the tax rate is 31%. A. What is operating cash flow each year? B. Using an operating cash flow of 485,210.91 each year, what is the NPV of this project? C. Given a net present value of $-498, 047.3, should the company accept or reject this project? D. Find the net present value break - even level of units sold. Round your answer to the nearest whole unit
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 5P
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Transcribed Image Text:A company sells Gizmos to consumers at a price of $90 per unit. The costs to produce Gizmos is $38 per unit. The company will
sell 14,000 Gizmos to consumers each year. The fixed costs incurred each year will be $180,000. There is an initial investment to
produce the goods of $3,800,000 which will be depreciated straight line over 11 year life of the investment to a salvage value of
$0. The opportunity cost of capital is 9% and the tax rate is 31%.
A. What is operating cash flow each year?
B. Using an operating cash flow of 485, 210.91 each year, what is the NPV of this project?
C. Given a net present value of $-498, 047.3, should the company accept or reject this project?
D. Find the net present value break-even level of units sold. Round your answer to the nearest whole unit
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