Find the quantity of cartons per year

Reference no: EM131933294

Question: Another utilization of cash flow analysis is setting the bid price on a project. To calculate the bid price, we set the project NPV equal to zero and find the required price. Thus, the bid price represents a financial break-even level for the project. The technique for calculating a bid price can be extended to many other types of problems. Answer the following questions using the same technique as setting a bid price; that is, set the project NPV to zero and solve for the variable in question.

Guthrie Enterprises needs someone to supply it with 128,000 cartons of machine screws per year to support its manufacturing needs over the next five years, and you've decided to bid on the contract. It will cost you $950,000 to install the equipment necessary to start production; you'll depreciate this cost straight-line to zero over the project's life. You estimate that, in five years, this equipment can be salvaged for $78,000. Your fixed production costs will be $333,000 per year, and your variable production costs should be $11.10 per carton. You also need an initial investment in net working capital of $83,000. Assume your tax rate is 34 percent and you require a return of 10 percent on your investment.

Assuming that the price per carton is $17.80, find the quantity of cartons per year you need to supply to break even. (Do not round intermediate calculations and round your final answer to nearest whole number.)

Reference no: EM131933294

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