A 10-year steel pipe-producing project requires $66 million in
upfront investment (all in depreciable assets), $20.40...
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A 10-year steel pipe-producing project requires $66 million inupfront investment (all in depreciable assets), $20.40 million ofwhich is borrowed capital at an interest rate of 6.28% per year.The expected pipe sales are 1,800,000 pipes per year. The expectedprice per pipe is $64 and the variable cost is $24 per widget. Thefixed costs excluding depreciation are expected to be $14 millionper year for ten years. The upfront investment will be depreciatedon a straight line basis for the 10-year useful life of the projectto $6 million book value. The expected salvage value of the assetsis $14 million. The tax rate is 25% and the WACC applicable to theproject is 14%.
Calculate the accounting Break-even point.
Calculate the DOL, DFL, and DCL (Do your own change insales).
Calculate the NPV breakeven annual cash flow for theproject.
Calculate the NPV break-even point
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AnswerA Accounting Brakeven point is the point at which business generates zero profit or suffer no loss It can be calculated as under BEP Fixed Cost Contribution Per Unit Step1 Calculation of Fixed Cost of Project Fixed Cost 14 Million Depreciation Deprecition using SLM Cost of Project Residual Value Economic Life of Project 66 6 10 6 Million Fixed Cost 14 6 20 Million Step 2 Calculation of
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