Consider Blooper’s mining project. Suppose that by investing an additional $1,000,000 initially, Blooper could reduce variable costs to 30% of sales. Use Spreadsheet 10.1.
a. Find the incremental NPV for the increased investment. (Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.)
b. At what level of sales will accounting profits be unchanged if the firm makes the new investment? Assume the equipment receives the same straight-line depreciation treatment as in the original example. (Hint: Focus on the project’s incremental effects on fixed and variable costs.) (Do not round intermediate calculations. Round your answer to the nearest whole dollar amount. Enter your answer in thousands.)
c. What is the NPV break-even point in total sales if the firm invests in the new equipment? (Negative value should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to the nearest whole dollar amount. Enter your answer in thousands.)
d. If the Blooper project operates at accounting break-even, will net present value be positive or negative?
Positive
Negative