Solar Calculator Company proposes to invest $9 million in a new calculator-making plant. Fixed costs are $3 million per year. A solar calculator costs $10 per unit to manufacture and sells for $50 per unit. If the plant lasts for three years and the cost of capital is 10% p.a., what is the break-even level (i.e., NPV = 0) of annual sales? Assume that revenues and costs occur at the end of each year. Assume straight line depreciation and tax rate of 20%.

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A:

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Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.