Eta Co is considering a five-year project with an initial investment of $2 million and a required
Question:
Eta Co is considering a five-year project with an initial investment of $2 million and a required rate of return of 12%. The project involves the manufacture of toys. Eta estimates that the toys will sell at $30 per unit. The variable cost of producing the toys is $20 per unit. The fixed costs are included in the initial investment. Sales volume is estimated to be 150,000 units per year. After five years, Eta will not be able to receive cash flows from the project in any form. Eta is concerned that the actual sales volume may be less than what was estimated.
What is the sales volume that the project needs to fall to before the NPV becomes zero? (Round the final answer to the nearest two digits.)
Foundations of Finance The Logic and Practice of Financial Management
ISBN: 978-0132994873
8th edition
Authors: Arthur J. Keown, John D. Martin, J. William Petty