# Stein Inc. recently purchased a new laminator at a cost of \$50,000....

## Question

Stein Inc. recently purchased a new laminator at a cost of \$50,000. Prior to the purchase, the variable cost to produce a laminated cardboard container \$0.75. With the new laminating machine, they estimate the variable cost will be \$0.50. How many cardboard containers will they need to produce to "break even"?

Calculate the net present value of a project which requires an initial investment of \$330,000 and is expected to generate a cash inflow of \$55,000 each month for 12 months. Assume that the salvage value of the project is zero. The discount rate is 10% per annum.
Reminder: Net Present Value = Net Present Value Cashflow - Initial Investment
a. \$44,753
b. \$374,753
c. \$625,598
d. \$295,598

## Solution Preview

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1. The problem can be solved by using an incremental approach to break-even analysis. Note that the fixed cost (the price of the new machine) has to be recovered by selling cardboard containers with a new structure. Therefore, how much additional contribution margin is earned by producing containers with a lower variable cost per unit? This savings will be the incremental contribution margin...

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