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After spending $5,000 consulting fee, we are evaluating a three-year project that will cost $346,500 to install the equipment necessary to start production. We will depreciate this cost straight-line

After spending $5,000 consulting fee, we are evaluating a three-year project that will cost $346,500 to install the equipment necessary to start production. We will depreciate this cost straight-line to zero over the project's life. In three years, this equipment can be salvaged for $5,000. Production sales are projected at 75,000 units per year. Price per unit is $46, variable cost per unit is $31, and fixed production costs are $825,000 per year. The tax rate is 35 percent, and we require a 15 percent return on this project. The following table provides the information of working capital: Year 3 Working capital 20,000 10,000 《公司理财学原理》大作业试题纸 卷 第5页共8页 2 0 (1) Calculate the depreciation for each year. (3) (2) Calculate the financial break-even point (tax should be considered). What is the degree of operating leverage at the accounting break-even point? (10) (3) Calculate the cash flow due to changes in working capital for each year. (5) (4) Calculate the total cash flow and NPV. Should we undertake the project? 

Apr 13 2021 View more View Less

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