What is the profit margin for individual unit

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Reference no: EM131831333

Firm X has spent $325 million on developing a new product. Assume Firm X has the same profit margin (NI available to common stock/sales) on this product as it does on other similar products in the brand portfolio. ($8.52 per 1,000 individual units). Assume this product is sold only in packages of 20 at least preliminarily. Assume the required rate of return on capital budgeting projects in this risk class is 11%. If Firm X sells the same number of individual units every year for the next twenty years, how many must be sold each year for this to be a zero-NPV project?

You may use project CF as equal to net income available to common stockholders plus depreciation. You may assume depreciation is $45,500 per year. Ignore taxes. Is this a reasonable number to expect to sell ? (perhaps consider looking at world population—what else would you want to know?)

Hint: What is the profit margin for an individual unit? Also, consider that there are infinite solutions to this problem unless you treat cash flows as an annuity.

Reference no: EM131831333

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