Highest fixed costs that could be incurred-still break even

Assignment Help Financial Management

Reference no: EM131954247

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 146,000 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 $1,860,000 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 $156,000. Your fixed production costs will be $271,000 per year, and your variable production costs should be $9.10 per carton. You also need an initial investment in net working capital of $136,000. The tax rate is 35 percent and you require a return of 12 percent on your investment. Assume that the price per carton is $16.60. Calculate the project NPV. What is the minimum number of cartons per year that can be supplied and still break even? What is the highest fixed costs that could be incurred and still break even?

Reference no: EM131954247

Questions Cloud

All important to understand when purchasing new equipment : What is meant by benefit/cost ratio, average payback period and ROI and why are the all important to understand when purchasing new equipment?

What is appropriate hypothesis test for analyzing data : 1. What is the appropriate hypothesis test for analyzing this data? Why is it appropriate?

Explian the treatment of the problem in broader literature : Explian/summarize the treatment of the problem in the broader literature (look at the bibliography) and by public policy if appropriate.

Develop a pl-sql anonymous block : Develop a PL/SQL anonymous block that displays the total sales for a zip code for a specific zip code. You may use any of your zip codes you wish.

Highest fixed costs that could be incurred-still break even : What is the minimum number of cartons per year that can be supplied and still break even? What is the highest fixed costs that could be incurred and still break

T-bills are financial instruments initially sold : T-bills are financial instruments initially sold by ________ to raise funds.

Reflective essay on your own attitudes and behaviours : Purpose: You are to consider the tools used in this unit and reflect how they have helped you to reflect on your own attitudes and behaviours

What compounded annual rate of return will that represent : Resulting in six total years of annual savings, what compounded annual rate of return will that represent?

Analyze whats interesting or helpful about the given view : Analyze What's interesting or helpful about this view? What would I notice if I believed view? In what sense or under what conditions might this idea be true?

User Account

All Pages