Consider a Pokemon card production facility with the following cost structure: t=0: $70,000, t=1: $10000, t=2:...

Consider a Pokemon card production facility with the following cost structure:

t=0: $70,000, t=1: $10000, t=2: $40,000, t=3: $–10,000 (a negative cost constitutes a revenue)

Suppose the facility can produce 10,000 packages in year 1, 15,000 packages in year 2 and 30,000 packages in year 3, but must charge the same price for the packages in each year of operation. What is the break-even selling price in this case?

MARR= 8%.

Question 2 options:

	a) 2-2.20
	b) 2.20-2.40
	c) 2.40-2.60
	d) 2.60-2.80
	e) None of the above

Solutions

Expert Solution

cash flow in each year = revenues - costs

present value of each cash flow = cash flow / (1 + MARR)ⁿ

where n = number of years after which the cash flow occurs.

First, we assume the selling price to be $2.00 and calculate the NPV.

NPV is -$13,746

Next, we use GoalSeek in Excel to find the selling price such that NPV is zero. This is the breakeven selling price.

The breakeven selling price is $2.30

The answer is (b)

jeff jeffy answered 2 years ago

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