Reference no: EM132001414

Johnson Shoe Co. has plans for a new line of shoes that will have the heel on the front and the toe on the back The firm hopes the new design will revolutionize the fashion world and give it a huge share of the market. In order to produce the new shoe design it will have to purchase a new machine that will cost $400,000 and have a useful life of four years. The firm expects to sell 60,000 pairs of the new shoes each year and plan to charge $20 per pair. Fixed costs associated with the process will be $200,000 annually, excluding depreciation expense. Variable costs will be $12 per pair. The new machine will be depreciated using straight line depreciation and there will be no associated salvage value. Working capital requirements in the amount of $100,000 will be required at the beginning of the first year of production. The company expects the cost of capital for the new process will be 15% per year. The company has an income tax rate of 34% per year. What net present value will be involved and what will be the breakeven volume?