Question: Please solve using Excel Question 3: This question tests your understanding of the various form of break-evens. A proposed project has the following facts: o

Please solve using Excel Question 3: This question tests your understanding ofPlease solve using Excel

Question 3: This question tests your understanding of the various form of break-evens. A proposed project has the following facts: o O O Investment required today, t=0, $10M (cash outflow) o Length of project, 8 years Forecast unit sales per year, 600,000 o Sales price per unit, $84 o Variable cost, $36 per unit Fixed costs, $20M per year - (includes $4M of depreciation) o Taxes, 25% Net working capital which consists of, inventory + A/R - A/P, requires an investment of $500K today, t=0, which is INCLUDED in the above "Investment required today, t=0, $10M The NWC investment of $500K noted in the last bullet point will reverse at the end of the project, in other words, cash flows will be higher by $500K at t=8 Cost of capital, 10%. O O O a) What is the contribution per unit? (2 points) b) How many units must the company sell PER YEAR to breakeven on a net income (or net earnings) basis? (4 points) c) How many units must the company sell PER YEAR to breakeven on a free cash flow basis in years 1 through 7 (they are identical so only one calculation needs to be shown)? (3 points) d) How many units must the company sell to breakeven on an NPV basis? (4 points)

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