Please show all work and explain answer. OneRing Company sells memorabilia to residents of Middle-Earth. They are about to invest $6 million in a new ring making plant. Fixed costs of operating the plant are $1 million a year. The ring costs $60/unit to manufacture (variable cost) and will be sold for $200/unit. The plant will last for 5 years, and will be depreciated over 5 years to zero using the straight-line method. The plant will have no salvage value after five years. Net working capital requirements are negligible for this project. Assume there are no taxes in Middle-Earth, and that the appropriate discount rate for the project is ten percent. How many rings per year must OneRing sell in order to break even?
Please show all work and explain answer.
OneRing Company sells memorabilia to residents of Middle-Earth. They are about to invest $6 million in a new ring making plant.
Fixed costs of operating the plant are $1 million a year. The ring costs $60/unit to
Net working capital requirements are negligible for this project. Assume there are no taxes in Middle-Earth, and that the appropriate discount rate for the project is ten percent.
How many rings per year must OneRing sell in order to break even?
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