Guthrie Enterprises needs someone to supply it with 142,000 cartons of machine screwsper year to support its manufacturing needs over the next five years. It willcost $1,820,000 to install the equipment necessary to start production; you’ll depreciatethis cost straight-line to zero over the project’s life. You estimate that in five years thisequipment can be salvaged for $152,000. Your fixed production costs will be $267,000 peryear, and your variable production costs should be $9.60 per carton. You also need aninitial investment in net working capital of $132,000. The tax rate is 22 percent and you require a return of 12 percent on your investment. Assume that the price per carton is$16.20.a. Calculate the project NPV.b. What is the minimum number of cartons per year that can be supplied and stillguarantee a zero NPV? Verify that the quantity you calculated is enough to atleast have a zero NPV.c. What is the highest fixed costs that could be incurred and still guarantee a zeroNPV? Verify that the fixed costs you calculated are enough to at least have azero NPV.

Question

Guthrie Enterprises needs someone to supply it with 142,000 cartons of machine screws
per year to support its manufacturing needs over the next five years. It will
cost $1,820,000 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 $152,000. Your fixed production costs will be $267,000 per
year, and your variable production costs should be $9.60 per carton. You also need an
initial investment in net working capital of $132,000. The tax rate is 22 percent and you require a return of 12 percent on your investment. Assume that the price per carton is
$16.20.
a. Calculate the project NPV.
b. What is the minimum number of cartons per year that can be supplied and still
guarantee a zero NPV? Verify that the quantity you calculated is enough to at
least have a zero NPV.
c. What is the highest fixed costs that could be incurred and still guarantee a zero
NPV? Verify that the fixed costs you calculated are enough to at least have a
zero NPV.

Expert Answer

Want to see the step-by-step answer?

Check out a sample Q&A here.

Want to see this answer and more?

Experts are waiting 24/7 to provide step-by-step solutions in as fast as 30 minutes!*

*Response times may vary by subject and question complexity. Median response time is 34 minutes for paid subscribers and may be longer for promotional offers.
Tagged in
Business
Finance

Related Finance Q&A

Find answers to questions asked by students like you.

Q: How much will I need to deposit into an account to have $6,500,000 in 10 years earning 5 % compounde...

A: Present value can be defined as the amount which is to be set aside in order to have a pre-defined s...

Q: A preferred stock has a par value of $110 and pays an annual dividend of 5% of par. If similar inves...

A: Computation of current preferred stock value:Hence, the current preferred stock value is $183.33. 

Q: Anthony and Susan are married filing jointly. Their combined income is currently $98,000. Both have ...

A: Increment of 8,500 will push the taxable income to the level of = Old income + increment = 98,000 + ...

Q: You borrow $7000 to help pay your college expenses. You agree to repay the loan at the end of 8 year...

A: (a) Formula:

Q: The pure expectations theory, or the expectations hypothesis, asserts that long-term interest rates ...

A: Justification:A Certificate Deposit (CD) for two years will have the similar yield as the Certificat...

Q: Savickas Petroleum’s stock has a required return of 12%, and the stock sells for $43 per share. The ...

A: Dividend = $1.00Growth Rate for 4 years = 30 % or 0.3 Calculation of Present Value of Dividend for 4...

Q: The newspaper reported last week that Tisch Enterprises earned $34.17 million this year. The report ...

A: Calculation of Earnings Growth and Next Year’s Earnings:The earnings growth is 13.50%.

Q: You have $42,180.53 in a brokerage account, and you plan to deposit an additional $5,000 at the end ...

A: The future value of annuity helps an investor or an individual to know the future value of their pre...

Q: Skyscraper Inc. has 12-year bonds outstanding with a face value of $1,000 and a market price of $974...

A: Calculation of coupon rate:Coupon rate is 3.75%.Excel spread sheet:

Q: Some characteristics of the determinants of nominal interest rates are listed as follows. Identify t...

A: The short-term riskless security rate during the period where inflation is expected to zero- real ri...

Q: How much of the financial goal comes from deposits and how much comes from interest? Rate 5% compoun...

A: As  first step we will find out the value of the periodic payment that will result into the target v...

Q: You are considering the purchase of real estate that will provide perpetual income that should avera...

A: Calculate the rate of return on market portfolio as follows:Rate of return on market portfolio is sa...

Q: What is MIRR - Modified Internal Rtae of Return?  Please provide example.

A: One of the pitfall method of conventional IRR is the fact that it assumes cash flows are reinvested ...

Q: Dudley Hill Golf Club's market-to-book ratio is currently 2.4 times and the PE ratio is 6.70 times. ...

A: Computation of book value per share and earnings per share:Hence, the book value per share is $8.85 ...

Q: Gilmore, Inc., had equity of $175,000 at the beginning of the year. At the end of the year, the comp...

A: a) Sustainable growth rate is the rate at which the business would grow. It is calculated by multipl...

Q: 10 8rcert Suppose that you earned a bachelor's degree and now you're teaching middle school. The sch...

A: Note: No inermediate rounding is done, only answers are rounded to whole numbera) A deposit of $1500...

Q: This year (10 years after you first took out the loan), you check your loan balance. Only part of yo...

A: Hi, there is some additional data missing the question. The total mortgage amount, interest rate, pr...

Q: Please show all equations and work as needed. Make the correct answer clear. If possible, please typ...

A: Note: Calculations are typed as per request for your convenienceWhen an IPO is priced below the poss...

Q: need help

A: Under two factor model:E(R) = Rf + B1 x (RF1 - Rf) + B2 x (RF2 - Rf) whereRf = Risk free rate; B1 an...

Q: he newspaper reported last week that Tisch Enterprises earned $34.17 million this year. The report a...

A: Hi, as per our policy we will answer the first three parts. Kindly repost the remaining parts separa...

Q: Gillette's most recent annual dividend was $8 per share. The company expects the growth of its divid...

A: Part A& B:Calculation of Current Value of Stock and Dividend Growth Rate:Excel Spreadsheet:

Q: Automobiles had an average cost of $16,000 in 2013. Average cost of the same automobiles now is $20,...

A: Calculation of rate of increase for the automobiles between 2 time period: Rate of increase for the ...

Q: You would like to have $72,000 available in 15 years. There are two options. Account A has a rate of...

A: Let A and B be the amount to be deposited in Account A and Account B respectively to get the desired...

Q: How do i solve for r in the equation:  A=P(1+rt)

A: Interest rate is the rate which is paid by the borrower as per the amount borrowed from the various ...

Q: 11. A company just paid a dividend of $4 and anticipates increasing its dividend at a constant rate ...

A: Calculate the required rate of return as follows:

Q: A yield curve is a graphical representation of the relationship between the yields and the maturitie...

A: The yield curve displays the upward path- this yield curve is termed as normal yield curve.The rates...

Q: Part 1: The CFO of Cruz, inc. is considering Projects A and B which are considered equally risky; th...

A: “Since you have posted a question with multiple sub-parts, we will solve first three sub-parts for y...

Q: The ___ the expected return from a financial asset, the ____ the risk of not getting the money back ...

A: Expected Return of Financial Asset:It is the expected profit or loss that is earned from the investm...

Q: (Solving for i of an annuity) You lend a friend $30,000, which your friend will repay in five equal ...

A: We can solve the rate of return using the Financial calculator or excel. I will demonstrate both the...

Q: You are a management trainee in one of the Manufacturing companies based in Johor, Malaysia. The com...

A: The firm’s value depends on the discount rate and future cash flows. Weighted average cost of capita...

Q: You are considering a stock investment in one of two firms (LotsofDebt, Inc. and LotsofEquity, Inc.)...

A: Please see the white board where I have summarized the information, in a tabular form. All financial...

Q: bMy Questions bartleby X X [Solved] Buy Coastal, InX C Consider The Following X payback period formu...

A: Hello. Since you have posted multiple questions and not specified which question needs to be solved,...

Q: Wheels, Inc. is a manufacturer of bicycles sold through retail bicycle shops in the southeastern Uni...

A: Alternative 1: Required Sales = XNumber of Salespersons required = 10Fixed Salary of Each Salesperso...

Q: Please show all equations and work as needed. Make the correct answer clear. If possible, please typ...

A: Calculation of WACC of firm after leverage (effective after-tax):Answer:WACC after leverage is 15.95...

Q: How much should chuck invest semiannually in his ira to have $250,000 in it when he retires in 25 ye...

A: Semi-annual compound interest is the interest which is added to the principal amount twice in a year...

Q: Suppose Tapley Inc. uses a WACC of 8% for below-average risk projects, 10% for average-risk projects...

A: It is given that,For below-average risk project, WACC is 8%.For average risk project, WACC is 10%.Fo...

Q: E. dual class 10. Which of the following indexes are value-weighted?" I. NYSE Composite II. S&P 500 ...

A: The market capitalization of each company helps in determining the its weight in the index whereas i...

Q: Which of the following are suppliers of loanable funds?     households     government units ...

A: First question:The suppliers of loanable finds include households, government units and foreign inve...

Q: 9.00060.O 0..0H 1- Suppose that you decide to buy a car for $25,767, including taxes and license fee...

A: Total cost to buy a car is $25,767, $8000 is the down-payment and the loan is of amount $17,767 (257...

Q: Microhard has issued a bond with the following characteristics: Par: $1,000Time to maturity: 5 years...

A: Calculate the prices of the bond as follows:MS-Excel --> Formulas --> Financials --> PV

Q: Q2)   Suppose the current one-year euro swap rate y0[0, 1] is 1.74%, and the two-yearand three-year ...

A: Meaning of Euro swap rate:A swap rate is the fixed rate that a receiver demands, in exchange for unc...

Q: Skolits Corp. issued 15-year bonds 2 years ago at a coupon rate of 7.6 percent. The bonds make semia...

A: Calculate the yield to maturity (YTM) as follows:MS - Excel --> Formulas --> Financials -->...

Q: Down Under Boomerang, Inc., is considering a new 3-year expansion project that requires an initial f...

A: The initial investment cost of store is $2,300,000.According to straight line depreciation, the annu...

Q: The coupon rate and the face value of the bond is contained in the   Group of answer choices bond i...

A: Bond indenture is the legal agreement between bond issuer and bond holder which consists of all term...

Q: Optimal corporation wants to expand their manufacturing facilities. They have two choices, first to ...

A: a)Determine the best option:The most financially beneficial option is option 1 expansion of current ...

Q: Suppose that 10 years ago you bought a home for $150,000, paying 10% as a down payment, and financin...

A: Calculation of Total Interest to be paid:The total interest to be paid is $239,482.71.Excel Spreadsh...

Q: how to assess the estimation techniques of long-term corporate investments, by focusing  on the rela...

A: Stock Valuation techniques are mostly driven by the concept that valuation of a stock today is nothi...

Q: You are the CFO of Carla Vista, Inc., a retailer of the exercise machine Slimbody6 and related acces...

A: Incremental cash flow at the beginning of the project = -( initial investment in the store + initial...

Q: Gilmore, Inc., had equity of $215,000 at the beginning of the year. At the end of the year, the comp...

A: The maximum growth which a firm can achieve by using internal resources and fund is known as interna...

Q: Consider the following data for a one-factor economy. All portfolios are assumed to be well diversif...

A: Before we get into the question, it's imperative to note that beta of a portfolio comprising of two ...