A firm is planning to supply a customer with silver coaster sets. The customer plans to purchase 10,000 sets annually for the next 4 years. The coaster sets will sell for $500 per set. Up front costs associated with this project are $600,000 and will have no value at the end of the project. Variable costs are $375 per coaster set and fixed costs are $300,000 per year. The project will require original net working capital of $450,000 that will be fully recovered in year 4. The firm operates with a 13% discount rate and a 36% marginal tax rate. The firm uses straight-line depreciation over the life of the project.
(a) Calculate the firms NPV breakeven points in sales. (please show all work and equations used)
See attached file.
sales 5000000 cash outflow 600000 cash inflow
less 450000 discount rate 13%
variable cost 3750000 1050000 present values
contributionf 1250000 1 662000 $0.88 $585,840.87
The following posting contains the computations for breakeven point and net present value of a project.