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MCS,PHD
Argosy University/ Phoniex University/
Nov-2005 - Oct-2011
Professor
Phoniex University
Oct-2001 - Nov-2016
to a zero salvage value. The tax rate is 40% and the appropriate discount rate is 12%. Fixed costs for additional salaries, utilities, and miscellaneous expenses are expected to be $20,000 per year. Variable costs for each unit are expected to be $40, and the unit price is $60. The expected sales quantity is 1,600 units per year.
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(a) Compute the NPV using the information above. (8 points) (SHOW ALL WORK)
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(b) Compute the financial break-even quantity, i.e., the minimum number of units required to justify investment. (SHOW YOUR WORK, AND BRIEFLY DESCRIBE HOW YOU OBTAINED THE ANSWER.) (2 points)
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· financial break-even quantity =
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· brief description of solution:
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(c) Compute the best-case and worst-case NPV, assuming the variable cost, fixed cost (except for depreciation), and sales price can all fluctuate up or down by 10% (independent of each other). (SHOW YOUR WORK, AND BRIEFLY DESCRIBE HOW YOU OBTAINED THE ANSWER.) (4 points)
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· best-case NPV = _______________
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· worst-case NPV = _______________
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· brief description of solution:
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