Detroit | 0 | 1 | 2 | 3 | 4 |
Investment | -$3,600,000 | ||||
NWC | -$360,000 | $360,000 | |||
Salvage | $250,000 | ||||
Sales | $5,677,261 | $5,677,261 | $5,677,261 | $5,677,261 | |
VC | -$3,585,638 | -$3,585,638 | -$3,585,638 | -$3,585,638 | |
FC | -$850,000 | -$850,000 | -$850,000 | -$850,000 | |
Depreciation | $900,000 | -$900,000 | -$900,000 | -$900,000 | |
EBT | $341,622 | $341,622 | $341,622 | $341,622 | |
Tax (24%) | -$81,989 | -$81,989 | -$81,989 | -$81,989 | |
Net Income | $259,633 | $259,633 | $259,633 | $259,633 | |
Cash Flows | -$3,960,000 | $1,159,633 | $1,159,633 | $1,159,633 | $1,709,633 |
NPV | $0.51 |
Cash Flows = Investment + NWC + Salvage x (1 - tax rate) + Net Income + Depreciation
The minimum level of output is a level at which NPV of the project is zero.
Using trial and error method, we get when quantity = 14,940.16 units, NPV is almost zero.
Consider a project to supply Detroit with 20,000 tons of machine screws annually for automobile production....
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Consider a project to supply Detroit with 25,000 tons of machine screws annually for automobile production. You will need an initial $4,500,000 investment in threading equipment to get the project started: the project will last for 5 vears. The accounting department estimates that annual fixed costs will be $1,075,000 and that variable costs should be $200 per ton; accounting will depreciate the initial fixed asset investment straight-line to zero over the 5-year project life. It also estimates a salvage value...
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