In: Finance
A company is considering an investment in a new product with a
10-year horizon (product will be sold for 10 years). The upfront
investment is $7 million and it is assumed to depreciate on a
straight-line basis for 10 years, with no residual value. Fixed
costs are assumed to be $500,000 per year. The company estimates
variable cost per unit (v) to be $75 and expects to sell each unit
for $315. There are no taxes and the required rate of return is 22%
per year. Assume that the investment would occur today, and all
future cash-flows will occur at the end of each year beginning in
one year.
For the following questions, give all answers ROUNDED
UP to the next highest WHOLE unit (ie 421.2 would be
rounded to 422):
What is the accounting breakeven quantity?
What is cash break even quantity?