Click to see additional instructions 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 $5 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 $550,000 per year. The company estimates variable cost per unit (v) to be $120 and expects to sell each unit for $425. There are no taxes and the required rate of return is 17% 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. What is the annual financial breakeven quantity? [Keep at least 3 decimals for intermediate answers. Round your final answer UP to the next highest WHOLE unit. (ie 421.2 would be rounded to 422)]

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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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 $5 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 $550,000 per year. The company
estimates variable cost per unit (v) to be $120 and expects to sell each unit for $425. There are no taxes and the required rate of return is 17% 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.
What is the annual financial breakeven quantity?
[Keep at least 3 decimals for intermediate answers. Round your final answer
UP to the next highest WHOLE unit. (ie 421.2 would be rounded to 422)]
Transcribed Image Text:Click to see additional instructions 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 $5 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 $550,000 per year. The company estimates variable cost per unit (v) to be $120 and expects to sell each unit for $425. There are no taxes and the required rate of return is 17% 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. What is the annual financial breakeven quantity? [Keep at least 3 decimals for intermediate answers. Round your final answer UP to the next highest WHOLE unit. (ie 421.2 would be rounded to 422)]
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