A company plans to invest for a production plant. Annual production plan is 45 million units. The investment at time 0 that is required for building the manufacturing plant is estimated as $200 million, and the economic life of the project is assumed to be 8 years. The annual total operating expenses, including manufacturing costs and overheads, are estimated as $115 million. The salvage value that can be realized from the project is estimated as $60 million. If the company's interest is 15%, determine the minimum price that the company should have for the product so that the total costs are covered.
A company plans to invest for a production plant. Annual production plan is 45 million units. The investment at time 0 that is required for building the manufacturing plant is estimated as $200 million, and the economic life of the project is assumed to be 8 years. The annual total operating expenses, including manufacturing costs and overheads, are estimated as $115 million. The salvage value that can be realized from the project is estimated as $60 million. If the company's interest is 15%, determine the minimum price that the company should have for the product so that the total costs are covered.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:A company plans to invest for a production plant. Annual production plan is 45 million units. The investment at time 0 that is required for building the manufacturing plant is
estimated as $200 million, and the economic life of the project is assumed to be 8 years. The annual total operating expenses, including manufacturing costs and overheads, are
estimated as $115 million. The salvage value that can be realized from the project is estimated as $60 million. If the company's interest is 15%, determine the minimum price that
the company should have for the product so that the total costs are covered.
Select one:
O a. 6.45
O b. 4.91
O c. 3.44
O d. 5.91
O e. 2.33
O f. 7.51
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