1. Markland Manufacturing intends to increase capacity by overcoming a bottleneck operation by adding new equipment. Two vendors have presented proposals. The fixed costs for proposal A are $50,000, and for proposal B, $70,000. The variable cost for A is $12.00, and for B, $10.00. The revenue generated by each unit is $20.00.
a) What is the break-even point in units for proposal A?
b) What is the break-even point in units for proposal B?
2. What is the break-even point in dollars for proposal A if you add $10,000 installation to the fixed cost?
3. What is the net present value of an investment that costs $75,000 and has a salvage value of $45,000? The annual profit from the investment is $15,000 each year for 5 years. The cost of capital at this risk level is 12%.
4. 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?