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# Computation of NPV and Break even point

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)

#### Solution Preview

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
less ...

#### Solution Summary

The following posting contains the computations for breakeven point and net present value of a project.

\$2.19