Determine the breakeven volume of sales required

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Reference no: EM131910232

A 10 year project to manufacture a newly developed product is expected to cost RM600 million. The product will sell at a price of RM1, 500 each. It has a variable cost of RM850 per unit and fixed manufacturing cost of RM22 million per year.

The required rate of return is 15% and RM30 million of net working capital will be required at the beginning. Tax rate of the company is 25%.

a) Determine the breakeven volume of sales (units) required for the project to be feasible.

b) It is estimated that 280,000 units of the product will be sold.

In a worst case scenario, price could drop by 10% and variable cost could increase by 5%. Calculate the worst case NPV and decide what management should do in case it materialized.

Reference no: EM131910232

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