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1 - A soft drink company has researched the possibility of marketing a new low-calorie beverage, in a study region. The expected profits depend largely on the sales volume, and there is some uncertain...

1 - A soft drink company has researched the possibility of marketing a new low-calorie beverage, in a study region. The expected profits depend largely on the sales volume, and there is some uncertainty as to the precision of the sales-forecast figures. The estimated investment is $173,000 while the anticipated profits are $49,500 per year for the next 6 years. If the company's MARR = 15%, what is the minimum volume of sales for the project to breakeven, if there is a profit of $6.70 per unit volume?

a) 7256 units

b) 6824 units

c) 5684 units

d) 5019 units

2 - (True/False) A payback period in refers to the period of time required to recoup the funds expended in an investment, or to reach the break-even point.

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Answer #1

Let the volume be x such that NPV = 0

6.70x*PVAF(15%, 6 years)- 173,000 = 0

6,70x*3.7845 – 173,000 = 0

X = 6,822.80 units

i.e. 6,824 units (approx.)

Hence, the answer is b) 6824 units

2.TRUE

Payback period is the time required to recoup original investment

Hence, the given statement is True

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