Question

A soft drink company has researched the possibility of marketing a new low-calorie beverage, in a study region. The expected profits depend largely on the sales volume, and there is some uncertainty as to the precision of the sales-forecast figures. The estimated investment is $173,000 while the anticipated profits are $49,500 per year for the next 6 years. If the company's MARR = 15%, what is the minimum volume of sales for the project to breakeven, if there is a profit of $6.70 per unit volume?
a) 7256 units
b) 6824 units
c) 5684 units
d) 5019 units

Answer 1

Answer:

b) 6824 units

Explanation:

According to the scenario, computation of the given data are as follows:-  

Assume volume of unit = x  

Cash flow = profit × volume per unit

                 = $6.70 × x

                  = $6.70x

= Cash flow × Present value of annuity factor(15%, 6 year) - initial investment

=$6.70x × Present value of annuity factor(15%, 6 year) - $173,000  

=$6.70x × 3.7845 - $173,000

=$25.36x - $173,000

X = $173,000 ÷ 25.36

= 6,821.76 units

The minimum volume of sales for the project to break even is 6,821.76 units