The company is considering the purchase of machinery and equipment to set up a line to produce a combination washer-dryer

Subject:AccountingPrice:3.87 Bought7

Share With

The company is considering the purchase of machinery and equipment to set up a line to produce a combination washer-dryer.

They have given you the following information to analyze the project on a 5-year timeline: Initial cash outlay is $150,000, no residual value.

Sales price is expected to be $2,250 per unit, with $595 per unit in labor expense and $795 per unit in materials. Direct fixed costs are estimated to run $20,750 per month.

Cost of capital is 8%, and the required rate of return is 10%.

They will incur all operational costs in Year 1, though sales are expected to be 55% of break-even

. Break-even (considering only direct fixed costs) is expected to occur in Year 2. Variable costs will increase 2% each year, starting in Year 3.

Sales are estimated to grow by 10%, 15%, and 20% for years 3 - 5.

They have asked you to calculate: The product’s contribution margin

Break-even quantity

NPV

IRR

PROVIDE STEP BY STEP ANSWER TO THIS QUESTION WITH EXPLANATION OF WHY steps chosen for each calculation and what each calculated answer means for each .

Please explain why management made the decision based on the calculations above. What other factors should have been considered in managements decisions.