Question
Your company is considering the introduction of a new product line. The initial investment required for this project is RM2,000,000, and annual maintenance costs are
Your company is considering the introduction of a new product line. The initial investment required for this project is RM2,000,000, and annual maintenance costs are anticipated to be RM140,000. Annual operating cost will be directly in proportion to the level of production at RM30 per unit, and each unit of product can be sold for RM200. If the project has a life of five years, what is the minimum annual production level for which this project is economically viable? Assume five-year straight line depreciation with no salvage value, an effective tax rate of 40%, and an after-tax MARR of 10% per year.
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