$11\mathrm{.}1(50$ marks total$)$

Nacirema Desserts Inc. has developed a new ice cream machine, the Coldplay Shiver, that is rarely out of service $($unlike the one at your favourite local burger joint$).$

Nacirema$$s finance department believes that demand will be strong for the new machine, so they are working on a feasibility study.

To manufacture an initial run of this machine, the firm will invest $$750,000$ for manufacturing equipment, which should last six years, with straight$-$line depreciation and no salvage value. The tax rate would be $30\%.$ The initial selling price for a Coldplay Shiver is expected to be $$12,000.$ Expected variable cost per Shiver is $$5000.$ Expected fixed costs, such as rent, utilities, and salaries, but excluding tax$-$deductible depreciation expense, would be $$250,000$ per year.

Address the following questions independently from one another. Refer to the original information given in the paragraphs above to answer each.

a$.$ Determine the number of unit sales needed for a breakeven operating profit.

b$.$ Assuming you could sell $60$ Shivers per year, what would be the net present value at a $15\%$ discount rate?

c$.$ Is your NPV decision in $($b$)$ consistent or inconsistent with the breakeven finding in $($a$)?$ Explain why.

d$.$ Assuming you could sell $60$ Shivers per year, what would be the payback period for the initial investment?

e$.$ Assuming you could sell $60$ Shivers per year, what would be your internal rate of return $($IRR$)?$

f$.$ Assuming you could sell $60$ Shivers per year, what would your selling price have to be to generate a net present value of $$150,000$ at a $15\%$ discount rate?

g$.$ If you could sell $60$ Shivers in the first year and your sales volume increased by $5\%$ each year until the end of Year six, what would the net present value be at a $15\%$ discount rate?

h$.$ Considering your answers to the previous questions, is this project an acceptable investment? Explain why.