Question

The cash flows for a project are given (in $) in the table below: Year Cash flow PVIFPresent Value 0 -25000 1 20000 2 15000 3 10000 5000 NPV= Complete the above table by finding,the present value interest factor PVIF for each cash flow, present value(PV and net present value (NPVof the project at 10%interest rate. Note: Use factor table for finding PVIF.n,i

2. Calculate how many units need to be produced in order to achieve a profit of f25,000 given the following information. Total fixed costsFC=30,000 Average variable costs AVC=10 Per unit price(P)=16

Answer 1

To complete the table and calculate the present value (PV) and net present value (NPV) of the project, we need to use the present value interest factor (PVIF). The PVIF is calculated using the formula PVIF = 1 / (1 + r)^n, where r is the interest rate and n is the number of periods.

Given that the interest rate is 10%, we can calculate the PVIF for each cash flow as follows:

Year | Cash Flow | PVIF (10%) | Present Value (PV)

----------------------------------------------

0 | -25000 | 1.000 | -25000

1 | 20000 | 0.909 | 18180

2 | 15000 | 0.826 | 12390

3 | 10000 | 0.751 | 7510

4 | 5000 | 0.683 | 3415

To calculate the NPV, we sum up the present values of the cash flows:

NPV = -25000 + 18180 + 12390 + 7510 + 3415 = 525

Therefore, the net present value (NPV) of the project at a 10% interest rate is $525.

To calculate the number of units needed to achieve a profit of $25,000, we can use the formula:

Profit = (Price - Average Variable Cost) * Quantity - Fixed Costs

Given that the average variable cost (AVC) is $10, the price (P) is $16, and the fixed costs (FC) are $30,000, we can substitute these values into the formula:

25000 = (16 - 10) * Quantity - 30000

Simplifying the equation:

25000 + 30000 = 6 * Quantity

55000 = 6 * Quantity

Quantity = 55000 / 6 = 9166.67

Therefore, approximately 9167 units need to be produced in order to achieve a profit of $25,000.