Adrian is contemplating purchasing for £60,000 a machine which he will use to produce 10,000 disks per annum for five years. These disks will be sold for £9 each and unit variable costs are expected to be £5. Incremental fixed costs will be £14,000 per annum for production costs and £5,000 per annum for selling and administration costs. Adrian has a required return of 10% per annum (Annuity of 10% for Year 1-5 is 3.791) Required: By how many units must the estimate of production and sales volume fall for the project to be regarded as not worthwhile?

Adrian is contemplating purchasing for £60,000 a machine which he will use to produce 10,000 disks per annum for five years. These disks will be sold for £9 each and unit variable costs are expected to be £5. Incremental fixed costs will be £14,000 per annum for production costs and £5,000 per annum for selling and administration costs. Adrian has a required return of 10% per annum (Annuity of 10% for Year 1-5 is 3.791) Required: By how many units must the estimate of production and sales volume fall for the project to be regarded as not worthwhile?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter5: The Time Value Of Money

Section: Chapter Questions

Problem 16P

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