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How many shelves does the company need to sell

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    Assignment ID: FG133136242

    Question – As the finance manager of a company, you are presented with the following project. The company is considering the purchase of a new piece of equipment which would cost $200000. This equipment will have a four-year useful life and have a salvage value of $0 at the end of the four-year period. The project life is also a 4-year. It is estimated that

    -the incremental overhead for running the equipment will be $20000 per year.

    -they can see the shelves for $25 each.

    -the cost of sales is $15 per shelf.

    Net Working Capital requirements for the project are as follows:

    Year 0 = $10,000

    Year 1 = $15,000

    Year 2 = $17,000

    Year 3 = $15,000

    Year 4 = 0

    The company has a 30% marginal tax rate and a cost of capital of 15%. How many shelves does the company need to sell to such that it will achieve an economic break-even?

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