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Consider a project to supply Detroit with 28,000 tons of machine screws annually for automobile production....

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Finance

Consider a project to supply Detroit with 28,000 tons of machinescrews annually for automobile production. You will need an initial$4,800,000 investment in threading equipment to get the projectstarted; the project will last for 5 years. The accountingdepartment estimates that annual fixed costs will be $1,150,000 andthat variable costs should be $215 per ton; accounting willdepreciate the initial fixed asset investment straight-line to zeroover the 5-year project life. It also estimates a salvage value of$525,000 after dismantling costs. The marketing departmentestimates that the automakers will let the contract at a sellingprice of $320 per ton. The engineering department estimates youwill need an initial net working capital investment of $460,000.You require a return of 14 percent and face a tax rate of 25percent on this project.

  

Calculate the accounting, cash, and financial break-evenquantities. (Do not round intermediate calculations andround your answers to the nearest whole number, e.g.,32.)

Answer & Explanation Solved by verified expert
4.5 Ratings (741 Votes)
AnswerLet us calculate cash flows and NPVContribution per ton 320 215 105Total annual fixed costs 1150000 960000 2110000Cash fixed cost 1150000A Accounting breakeven quantity Fixed    See Answer
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