How many units must be sold each year

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Commodore Motors management is considering a project to produce toy cars.

The project would require an initial outlay of $100,000 and have an expected life of 10 years.

Management estimates that each year during the life of the project depreciation and amortization would be $8000,

capital expenditures would be $4000,

additions to working capital would be $2000,

and fixed costs would be $3000.

Also, each toy car would sell for $15 and cost $7 to produce.

Finally, the cost of capital for the project would be 12 percent,

cash flow from the project would be taxed at a 25 percent rate,

and the assets would be depreciated to a salvage value of $0.

How many units must be sold each year in order for this project to break even from an economic standpoint?

Reference no: EM131155931

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