This is a very nice paper and reads very well. Thank you for another job well done!
I need assistance with the following, please see what I have calculated thus far as I am not sure whether I am on the right track.
You and your friends are thinking about starting a motorcycle company named Apple Valley Choppers. Your initial investment would be $500,000 for depreciable equipment, which should last 5 years, and your tax rate would be 40%. You could sell a chopper for $10,000, assuming your average variable cost per chopper is $3000, and assuming fixed costs, such as rent, utilities and salaries, would be $200,000 per year.
A. Accounting breakeven: How many choppers would you have to sell to break even, ignoring the costs of financing?
29 choppers would need to sell to break even.
Initial invest- $500,000
ave variablecost= 3,000
assumed fixes cost 200,000/yr
Q=fixed costs/selling price-variable costs
=29 sold to break even
B. Financial breakeven: How many choppers would you have to sell to break even, if you required a 15% return?
C. Assuming you could sell 60 choppers per year, what would be your IRR?
What formula do I use for this?
D. Assuming you could sell 60 choppers per year, what would your selling price have to be to generate a net present value of $150,000 at a 15% discount rate?
what formula do I use?
E. If you could sell 60 choppers in the first year, and your sales volume increased by 5% each year until the end of year 5, what would the net present value be at a 15% discount rate?
F. If you need to invest working capital equal to 10% of the next (coming) year’s sales revenue, what would be the effect on the net present value of the project? Do you think that working capital investments always reduce the net present value of projects?
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