Your company is considering the introduction of a new produc

Your company is considering the introduction of a new product line. The initial investment required for this project is $500,000 and an annual maintenance cost anticipated to be $45,000. Annual operating costs will be directly proportional to the level of production at $8.50 per unit, and each unit of product can be sold for $65. If the MARR is 15% and the project has a life of 5 years, what is the minimum annual production level for which the project is economically viable?

Solution

Answer: Let X= units produced per year

AW = -$45,000+X($65-$8.50)-$500,000(A/P,15%,5)

Economically viable-> AW>=0

The X which makes AW=0 is the minimum production level

-$45,000+X($65-$8.50)-$500,000(A/P,15%5)=0

X= 3,436