T Co plans to buy a machine to make a new product. The machine will...
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T Co plans to buy a machine to make a new product. The machine will cost $250,000 and last 4 years, at the end of which time it will be sold for $5,000. T Co expects demand for the product to be:
Year 1 2 3 4
Demand (units) 35,000 40,000 50,000 25,000
The selling price is expected to be $12.00/unit and the variable cost of production is expected to be $7.80 per unit. Incremental annual fixed production overheads = $25,000 per year. Selling prices and costs are expected to increase from year 1 onwards as follows:
Selling price: 3% per year
Variable costs: 4% per year
Fixed production overheads: 6% per year
What is the average investment?
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