Your firm is interested in selling a new type of headphone. The machinery to build these headphones costs $300,000 (at year 0) and will be used for 10 years. At the end of these 10 years, the machine is worth nothing. The price of these headphones is $175 and the cost to produce each pair is $45. There are annual (years 1 through 10) fixed costs of $320,000 to produce the headphones. You will depreciate the machine using straightline depreciation. The appropriate discount rate is 13% and your firm's marginal tax rate is 35%. Use GOALSEEK to find the minimum number of headphones you need to sell each year in order to breakeven (i.e. have an NPV of zero).

Hint: You are going to have to find the annual free cash flow (FCF) produced by this project each year.

Answer rating: 100% (QA)

Time line 0 1 2 3 4 5 6 7 8 9 10 Cost of new machine 300000 Initial Investment outlay 300000 Unit sa... View the full answer