Question
The company sets a requirement that the new project of 15 years should at least produce an OCF equal to 0. Accordingly, it expects that
The company sets a requirement that the new project of 15 years should at least produce an OCF equal to 0. Accordingly, it expects that the project has fixed costs of $215,000, variable costs of $21.40 per unit, and a selling price of $70 per unit. The company has the maximum capacity of producing 6,500 units. The initial cost is $75,000 and the depreciation is expected to be divided into the project's life with a straight-line method. Ignoring taxes, what is the cash break-even quantity? Comparing the cash break-even quantity with the capacity, should the company undertake the project?
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