Answer to Question #315419 in Financial Math for Gyven

Question

Demandunits: 7 100(2022), 9 100(2023), 11 100(2024), 4 100(2024)

Initial investment $20 000

Maximumadditional units 5 000 units

Currentselling price $50/unit

Variableoperating costs $28/unit

Fixedoperating costs $15 000/year

If production remained at 5,100 units, the current selling price would be expected to continue throughout the remainder of the life of the product. However, if production is increased, it is expected that the selling price will fall to $45 per unit for all units sold. Again, this will last for the remainder of the life of the product. No terminal value or machinery scrap value is expected at the end of four years, Good Hope uses a nominal discount rate of 10% per year and a target return on capital employed of 20% per year. Ignore taxation.

(a)Calculate

(i)net present value;

(ii) internal rate of return;

(iii)return on capital employed based on initial investment

(iv)discounted payback period

Answer 1

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