The worst-case NPV is:<br> NPVworst = –$644,000 – $72,510(PVIFA15%,8)<br> NPVworst = –$969,375.68<br>3. We can use the accounting breakeven equation:<br> QA = (FC + D)/(P – v)<br> to solve for the unknown variable in each case.Doing so, we find:<br> (1): QA = 95,300 = ($820,000 + D)/($41 – 30)<br> D = $228,300<br> (2): QA = 143,806 = ($2,750,000 + 1,150,000)/(P – $56)<br> P = $83.12<br> (3): QA = 7,835 = ($160,000 + 105,000)/($97 – v)<br> v = $63.18<br>4. When calculating the financial breakeven point, we express the initial investment as an equivalent<br>annual cost (EAC).Dividing the initial investment by the five-year annuity factor, discounted at 12<br>percent, the EAC of the initial investment is:<br> EAC = Initial Investment / PVIFA12%,5<br> EAC = $390,000 / 3.60478<br> EAC = $108,189.80<br> Note that this calculation solves for the annuity payment with the initial investment as the present<br>value of the annuity.In other words:<br> PVA = C({1 – [1/(1 + R)]t<br> } / R)<br> $390,000 = C{[1 – (1/1.12)5<br> ] / .12}<br>C = $108,189.80<br><br>The annual depreciation is the cost of the equipment divided by the economic life, or:<br> Annual depreciation = $390,000 / 5<br> Annual depreciation = $78,000<br> Now we can calculate the financial breakeven point.The financial breakeven point for this project is:<br> QF = [EAC + FC(1 – tC) – D(tC)] / [(P – VC)(1 – tC)]<br> QF = [$108,189.80 + $280,000(1 – 0.34) – $78,000(0.34)] / [($25 – 11)(1 – 0.34)]<br> QF = 28,838.72 or about 28,839 units<br><br>5. If we purchase the machine today, the NPV is the cost plus the present value of the increased cash<br>flows, so:<br> NPV0 = –$2,900,000 + $475,000(PVIFA9%,10) ...
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