How many shelves does the company need to sell

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Question - As the finance manager of a company, you are presented with the following project. The company is considering the purchase of a new piece of equipment which would cost $200000. This equipment will have a four-year useful life and have a salvage value of $0 at the end of the four-year period. The project life is also a 4-year. It is estimated that

-the incremental overhead for running the equipment will be $20000 per year.

-they can see the shelves for $25 each.

-the cost of sales is $15 per shelf.

Net Working Capital requirements for the project are as follows:

Year 0 = $10,000

Year 1 = $15,000

Year 2 = $17,000

Year 3 = $15,000

Year 4 = 0

The company has a 30% marginal tax rate and a cost of capital of 15%. How many shelves does the company need to sell to such that it will achieve an economic break-even?

Reference no: EM133136242

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