Commodore Motors management is considering a project to produce toy cars. The project would require an initial outlay of $100,000 and have an expected life of 10 years. Management estimates that each year during the life of the project depreciation and amortization would be $8,000, capital expenditures would be $4,000, additions to working capital would be $2,000, and fixed costs would be $3,000. Also, each toy car would sell for $15 and cost $7 to produce. Finally, the cost of capital for the project would be 12 percent, cash flows from the project would be taxed at a 25 percent rate, and the assets would be depreciated to a salvage value of $0. How many units must be sold each year in order for this project to break-even from an economic standpoint?
This question was answered on: Jul 11, 2017
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