1. A capacity alternative has an initial cost of $75,000 and $35,000 salvage value. It creates cash flow (income) of $15,000 for each of the next five years. If the cost of capital is 12 percent (i =12%), what is the net present value of this investment?
2. A product is currently made in a process-focused shop, where fixed costs are $9,000 per year and variable cost is $50 per unit. The firm sells the product for $200 per unit.
a) What is the break-even point for this operation?
b) What is the profit (or loss) on a demand of 200 units per year?