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four years with zero salvage value. The annual fixed cost is SR40,000. The required rate of return is 15.5%. The variable cost is SR SR1.5 per bottle. The bre even value for the bottle's unit price is approximately equal to: O SR3.27 SR3.92 SR2.82 None of the other answers

four years with zero salvage value. The annual fixed cost is SR40,000. The required rate of return is 15.5%. The variable cost is SR SR1.5 per bottle. The bre even value for the bottle's unit price is approximately equal to: O SR3.27 SR3.92 SR2.82 None of the other answers

Essentials Of Investments
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
Problem 1PS
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A special water bottle producing machine is needed. The initial cost is SR 70,000. It can be used to produce 36500 bottles per year. The machine can be used for four years with zero salvage value. The annual fixed cost is SR40,000. The required rate of return is 15.5%. The variable cost is SR SR1.5 per bottle. The break- even value for the bottle's unit price is approximately equal to: SR3.27 SR3.92 SR2.82 None of the other answers
Transcribed Image Text:A special water bottle producing machine is needed. The initial cost is SR 70,000. It can be used to produce 36500 bottles per year. The machine can be used for four years with zero salvage value. The annual fixed cost is SR40,000. The required rate of return is 15.5%. The variable cost is SR SR1.5 per bottle. The break- even value for the bottle's unit price is approximately equal to: SR3.27 SR3.92 SR2.82 None of the other answers
Expert Solution
Step 1

Cost of machine =70000

Annual depreciation =70000/4

Annual depreciation =17500

Fixed cost =40000

Total annual cost =40000+17500=57500

Annual interest =0.155 x 70000

Annual interest =10850

Total annual cost =10850+57500

Total annual cost =68350

Step 2

Total bottles =36500

Variable cost =1.5

Total variable cost =36500×1.5

Total  variable cost =54750

Total cost =variable cost +total annual cost 

Total cost =54750+68350=123100

Total cost =123100

At break even point 

Sales =Total cost 

36500 x sales price =123100

Sales price =3.37

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