Your company is considering the introduction of a new product line. The initial

Question

Your company is considering the introduction of a new product line. The initial investment required for this project is $500,000, and annual maintenance costs are anticipated to be $35,000. Annual operating cost will be directly in proportion to the level of production at $7.50 per unit, and each unit of product can be sold for $50.00. If the project has a life of five years, what is the minimum annual production level for which this project is economically viable? Work this problem on an after tax basis. Assume five-year SL depreciation (SV5 = 0), and effective income tax rate of 40%, and an after-tax MARR of 10% per year.

Explanation / Answer

Answer:

Let X be the minimum annual production level.

AW = -500,000 (A/P,10%,5)

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