Jason Wilkins

Prof. Knopp

Devry University

3/22/2015

Week 3 Homework

S7.17

a) F(A) = $50,000
P(A) = $20.00
V(A) = $12.00
BEP(x) = 50,000/(20-12) = 6250 units

b) F(B) = $70,000
P(B) = $20.00
V(B) = $10.00
BEP(x) = 70,000/(20-10) = 7,000 units

S7.18

Using the data in Problem S7.17:

Formula: Fixed Cost/1-(V/P)

a) What is the break-even point in dollars for proposal A if you add $10,000 installation to the fixed
cost? $150,000
b) What is the break-even point in dollars for proposal B if you add $10,000 installation to the fixed
cost? $160,000

S7.30

Initial Investment= $75000

Salvage Value = $45000
Five-year Return = $15000
Cost of Capital = 12%

NPV Annuity Factor for 5 years @ 12% = 3.605 (value from table S7.2)
NPV Present Value Factor for 5 years @ 12% = 0.567 (value from table S7.1)

Present Value = Annuity Factor x Five-year return

3.605 * $15,000 = $54,075

Present value of salvage = Present Value Factor x Salvage Value

0.567 * $45,000 = $25,515

Net Present Value = Present Value + Present Value of Salvage - Initial Investment

$54,075 + $25,515 - $75,000 = $4,590

S7.31

The initial cost of an investment is $65,000 and the cost of capital is 10%. The return is $16,000
per year for 8 years. What is the net present value?
Initial investment = $65,000
Eight-year return = $16,000 per year
Cost of capital = 10%
NPV annuity factor * 8 years @ 10% = 5.33
Present value = 5.33 * $16000 = $85,280
Net present value = $85,280 – $65,000 = $20,280