Question

Consider a project to supply Detroit with 27,000 tons of machine screws annually for automobile production. You will need an initial $5,700,000 investment in threading equipment to get the project started; the project will last for 6 years. The accounting department estimates that annual fixed costs will be $1,375,000 and that variable costs should be $260 per ton; accounting will depreciate the initial fixed asset investment straight-line to zero over the 6-year project life. It also estimates a salvage value of $750,000 after dismantling costs. The marketing department estimates that the automakers will let the contract at a selling price of $374 per ton. The engineering department estimates you will need an initial net working capital investment of $550,000. You require a return of 13 percent and face a tax rate of 24 percent on this project.

  

Calculate the accounting, cash, and financial break-even quantities. (Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32.)

Answer 1

A 1 Cash break-even 9,430 (1375000* (1-24%)-(5700000/6)*24 %)/(374-260)* (1-24%)) 20,395 (5700000/6+1375000)/(374-260) 3 Accounting break-even OCF at 27,000 Tons $ (27000* (374-260)-1325000)* (1-24%)+5700000*24%/6 (28000* (374-260)-1325000)* (1-24%)+5700000* 24%/6 5 1,560,280 OCF at 28,000 Tons $ 6 1,646,920 8 NPV at 27,000 Tons 525,253.74 PV(13%,6,-1560280)-5700000-550000+(550000+750000*(1-24%))/(1+13%)^6 871,601.45 PV(13%,6,-1646920)-5700000-550000+(550000+7500000*(1-24%))/(1+13%)^6 $ 9 NPV at 28,000 Tons 10 11 ANPV/AQ 346.35(871601.45-525253.74)/1000 $ 12 13 Financial break-even 25,483 =27000-525253 .74/346.35

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