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A car maker is making a new type of car. The development is costing it $1,000,000...

A car maker is making a new type of car. The development is costing it $1,000,000 which is depreciated in a straight line over 5 years. The fixed costs is 25,000,000 dollars a year. The variable cost is 20,000 dollars a car. The opportunity cost of capital is 10%, the tax rate is 20%. The company plans to sell each car at $60,000 a car. How many vehicles must be sold each year to break even from a cash flow perspective?

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Answer #1

This is solved using Solver where NPV of the cash flows is set to zero, to find the break-even number of cars. It comes out to be between 631 and 632 units (going from negative NPV to positive NPV) so 632 cars have to be sold each year in order to break even. (Exact answer is 631.9937)

Calculations:

Formula 2 3 4 1000000 u*vc DC/5 Year (n) Development cost (DC) Number of cars sold p.a. (u) Price per car (p) Variable cost p

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