Calculate project NPV
B. What is minimum number of cartons per year that can be supplied and still break even?
C. What is the highest fixed costs that could still be incurred and still break even?

 

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Guthrie Enterprises needs someone to supply it with 158,000 cartons of machine screws per year to support its manufacturing needs over the next five years, and you've decided to bid on the contract. It will cost $1,980,000 to install the equipment necessary to start production; you'll depreciate this cost straight-line to zero over the project's life. You estimate that in five years this equipment can be salvaged for $168,000. Your fixed production costs will be $283,000 per year, and your variable production costs should be $11.20 per carton. You also need an initial investment in net working capital of $148,000. The tax rate is 23 percent and you require a return of 12 percent on your investment. Assume that the price per carton is $17.80. Guthrie Enterprises needs someone to supply it with 158,000 cartons of machine screws per year to support its manufacturing needs over the next five years, and you've decided to bid on the contract. It will cost $1,980,000 to install the equipment necessary to start production; you'll depreciate this cost straight-line to zero over the project's life. You estimate that in five years this equipment can be salvaged for $168,000. Your fixed production costs will be $283,000 per year, and your variable production costs should be $11.20 per carton. You also need an initial investment in net working capital of $148,000. The tax rate is 23 percent and you require a return of 12 percent on your investment. Assume that the price per carton is $17.80.

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To calculate the net present value NPV of the project we need to determine the cash flows associated with the project and discount them back to their present value Lets break down the calculations ste... View the full answer