You were hired as a consultant for Palestine Corp. Palestine Corp is considering a new project. It
Question:
You were hired as a consultant for Palestine Corp. Palestine Corp is considering a new project. It would cost $2,186,000 to acquire the new automated system. The cost will be depreciated straight-line over 16 years with no salvage value. Note this is NOT a CCA rate. The project requires a 13.0% return, and the tax rate is 33%. Sales are projected to be 500 units per year. They will sell for $7,000 each and have variable costs per unit of $5,600. The project will have a fixed cost of $250,000 per year. What is the NPV of the project? What would the NPV be in a best-case scenario where unit sales, price, variable cost, and fixed costs were each 4% off from the forecast? Given the original projections,
what are the cash, accounting, and financial break-even levels for this project, ignoring taxes for this break-even analysis?
Corporate Finance Core Principles and Applications
ISBN: 978-0077905200
3rd edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Bradford