Reference no: EM132539619

Question - The company is considering the purchase of machinery and equipment to set up a line to produce a combination washer-dryer. They have given you the following information to analyze the project on a 5-year timeline: Initial cash outlay is $150,000, no residual value.

Sales price is expected to be $2,250 per unit, with $595 per unit in labor expense and $795 per unit in materials.

Direct fixed costs are estimated to run $20,750 per month.

Cost of capital is 8%, and the required rate of return is 10%.

They will incur all operational costs in Year 1, though sales are expected to be 55% of break-even.

Break-even (considering only direct fixed costs) is expected to occur in Year 2.

Variable costs will increase 2% each year, starting in Year 3.

Sales are estimated to grow by 10%, 15%, and 20% for years 3 - 5.

Required - Calculate the following -

1. The product's contribution margin

2. Break-even quantity

3. NPV

4. IRR