Tristan\'s Toys invested in a new manufacturing system. The initial cost was $26
ID: 2783552 • Letter: T
Question
Tristan's Toys invested in a new manufacturing system. The initial cost was $268917. Annual costs are projected to be $174186, increasing by 10% each subsequent year. The system will require a substantial overhaul of $51894 at the end of year 8. The line is estimated to have a lifespan of 14 years.
The company projects it will sell 71879 units the first year, with the number of units sold increasing by 37329 units each subsequent year. What is the minimum price that the company must charge per unit to breakeven on the investment? Use a MARR of 6% compounded annually to make the calculation.
Enter your answer as follows: 12.34 - round to two decimal places
Do not use a dollar sign ("$").
Explanation / Answer
Total fixed cost that has gone in setting up and system overhaul is 268917 + 51894 = 320811
Sum of total annual cost every year = 4872850
Total sales in 14 year period = 4403245
We have to calculate the present value of the annual costs and the sales value by using the MARR rate of 6%
Calculate present value of system overhaul also
Break even formula :
No of sales * price(PV) = Setup and system overhaul cost(PV) + Sum of annual costs (PV)
Lets say price is x
2598503* x = 301475.9 + 2959582
x = 1.254
See table below for calculation numbers
Present value formula = cash flow/(1+ rate/100)^ ( no of years) 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Initial cost 268917 Annual cost 174186 191604.6 210765.1 231841.6 255025.7 280528.3 308581.1 339439.2 373383.2 410721.5 451793.6 496973 546670.3 601337.3 PV of annual cost 164326.4 170527.4 176962.4 183640.2 190570.1 197761.4 205224.1 212968.4 221004.9 229344.7 237999.2 246980.3 256300.4 265972.1 System overhaul cost present value 32558.94 Sales 71879 109208 146537 183866 221195 258524 295853 333182 370511 407840 445169 482498 519827 557156 PV of sales 67810.38 97194.73 123035.3 145639.1 165289.8 182249.2 196759.1 209042.5 219304.9 227735.7 234509.5 239786.7 243715.2 246430.6Related Questions
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