Fixed costs you could afford each year and still break even

Assignment Help Financial Management

Reference no: EM131923960

To solve the bid price problem presented in the text, we set the project NPV equal to zero and found the required price using the definition of OCF. Thus the bid price represents a financial break-even level for the project. This type of analysis can be extended to many other types of problems. Romo Enterprises needs someone to supply it with 124,000 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 $910,000 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 $74,000. Your fixed production costs will be $329,000 per year, and your variable production costs should be $10.70 per carton. You also need an initial investment in net working capital of $79,000. Assume your tax rate is 30 percent and you require a 11 percent return on your investment.

Assuming that the price per carton is $17.40, what is the NPV of this project?

Assuming that the price per carton is $17.40, find the quantity of cartons per year you need to supply to break even.

Assuming that the price per carton is $17.40, find the highest level of fixed costs you could afford each year and still break even.

Reference no: EM131923960

Questions Cloud

What is the expected return of portfolio : You have ?$67,000. You put 20?% of your money in a stock with an expected return of 14?%, What is the expected return of your? portfolio?

What was total real return on investment : If the inflation rate was 3.1 percent over the past year, what was your total real return on investment?

Weighted average of that implied by outstanding debt issues : Assume that the overall cost of debt is the weighted average of that implied by the two outstanding debt issues.

Future value of ordinary annuity : (Future value of an ordinary annuity) You are graduating from college at the end of this semester. How much will you have when you retire in 40 years?

Fixed costs you could afford each year and still break even : Assuming that the price per carton is $17.40, find the highest level of fixed costs you could afford each year and still break even.

Financing working capital : Do some research on Verizon to find some current cost estimates for various means of financing working capital.

What is company weighted average flotation cost : What is your company’s weighted average flotation cost, assuming all equity is raised externally?

One year expiration using one-period binomial model : You try to price an at-the- money call on Albert Corp. stock with one year expiration using one-period binomial model.

What is holmes after-tax cost of debt : If its marginal tax rate is 35%, what is Holmes's after-tax cost of debt? Round your answer to two decimal places.

User Account

All Pages