Highest fixed costs that could be incurred-still break even

Assignment Help Business Economics

Reference no: EM131011427

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. Guthrie Enterprises needs someone to supply it with 153,000 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 $1,930,000 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 $163,000. Your fixed production costs will be $278,000 per year, and your variable production costs should be $9.80 per carton. You also need an initial investment in net working capital of $143,000. The tax rate is 38 percent and you require a 10 percent return on your investment. Assume that the price per carton is $17.30.

a) Calculate the project NPV.

b) What is the minimum number of cartons per year that can be supplied and still break even?

c) What is the highest fixed costs that could be incurred and still break even?

Reference no: EM131011427

Questions Cloud

The policy reimburses for actual cash value : Last year, Dylan and Crystal Evans bought a home with a dwelling replacement value of $350,000 and insured it (via an HO-5 policy) for $310,000. The policy reimburses for actual cash value and has a $500 deductible, standard limits for coverage C ite..

The default risk premium on the corporate bonds : A company's 5-year bonds are yielding 9.7% per year. Treasury bonds with the same maturity are yielding 6% per year, and the real risk-free rate (r*) is 2.6%. The average inflation premium is 3%, and the maturity risk premium is estimated to be 0.1(t..

Calculate the EAC for the old computer and the new computer : Suppose we are thinking about replacing an old computer with a new one. The old one cost us $1,260,000; the new one will cost, $1,520,000. The new machine will be depreciated straight-line to zero over its five-year life. It will probably be worth ab..

Highest fixed costs that could be incurred-still break even : 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...

What is the total amount of profit for your IBM investment : Three years ago, you purchased 192 shares of IBM stock for $101 a share. Today, you sold your IBM stock for $117 a share. For this problem, ignore commissions that would be charged to buy and sell your IBM shares and dividends you might have received..

Approximate dollar price for which you could sell your bond : Assume that three years ago, you purchased a corporate bond that pays 5.50 percent. The purchase price was $1,000. Also assume that three years after your bond investment, comparable bonds are paying 6.00 percent. What is the annual dollar amount of ..

Information professional to understand a financial statement : What portions of the financial statements are most impacted by HIM functions? need two example how the answer should be : the HIM function of Coding can positively or negatively impact cash flow because hospitals are reimbursed for inpatients based o..

Treasury bond futures contract : Suppose that you purchase a Treasury bond futures contract at $95 per $100 of face value. (LG 23-2) What is your obligation when you purchase this futures contract? If an FI purchases this contract, in what kind of hedge is it engaged? Assume that th..

User Account

All Pages