Question
Esfandairi Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $21.0 million. This fixed asset will be depreciated
Esfandairi Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $21.0 million. This fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be worthless. The project is expected to sell one million units each year at a price per unit of $16.50 and a cost per unit of $5.40, however actual cost and price may be 10% higher or lower than these expected values. Fixed costs will be $4 million per year. The tax rate is 21 percent and the required return on the project is 11.4 percent.
How many units would the company need to sell in order to break even on an economic basis (do not ignore taxes)?
1,179,533
| ||
1,454,878
| ||
None of these is correct
| ||
1,644,024 | ||
1,905,291
|
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