Please respond, have posted question twice before, got incorrect response both t

Question

Please respond, have posted question twice before, got incorrect response both times.

Romo Enterprises needs someone to supply it with 112,000 cartons of machine screws per year to support its manufacturing needs over the next five years, and you've decided to bid on the contract. It will cost you $790,000 to install the equipment necessary to start production; you'll depreciate this cost straight- line to zero over the project's life. You estimate that, in five years, this equipment can be salvaged for $62,000. Your fixed production costs will be $317,000 per year, and your variable production costs should be $9.50 per carton. You also need an initial investment in net working capital of $67,000. Assume your tax rate is 35 percent and you require a 12 percent return on your investment a. Assuming that the price per carton is $16.20, what is the NPV of this project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NPV b. Assuming that the price per carton is $16.20, find the quantity of cartons per year you need to supply to break even. (Do not round intermediate calculations and round your answer to nearest whole number.) Quantity of cartons c. Assuming that the price per carton is $16.20, find the highest level of fixed costs you could afford each year and still break even. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Fixed costs

Explanation / Answer

Note: With capital expenditure at $ 790000 and life 5 years, the annual depreciation is $ 158,000

a. Calculation of NPV of the Project : I. Initial outlay of cash flows: Equipment cost 790000 Net working capital 67000 857000 II. In-between Cash Flows: 1 2 3 4 5 Cartons of machine screws 112000 112000 112000 112000 112000 Price per carton is $ 16.20 16.20 16.20 16.20 16.20 Revenue (A) 1814400 1814400 1814400 1814400 1814400 Less: Variable Production costs @ $ 9.50 per corton 1064000 1064000 1064000 1064000 1064000 Less: Depreciation 158000 158000 158000 158000 158000 Less: Fixed costs 317000 317000 317000 317000 317000 Total costs (B) 1539000 1539000 1539000 1539000 1539000 Profit before tax (A-B) 275400 275400 275400 275400 275400 Less: Tax @ 35% 96390 96390 96390 96390 96390 Profit After Tax 179010 179010 179010 179010 179010 Cash flow after tax 337010 337010 337010 337010 337010

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