A proposed new product has these estimates:
Development costs: $1 million each in years 1 and 2
Marketing costs: $50,000 in year 2, and $20,000 in years 3 through 10.
Production cost: $20 per unit in years 3 through 10
Selling price: $50 per unit in years 3 through 6, and $40 per unit in years 7 through 10
Salvage price: $400,000 in year 10
The product will be discontinued in year 10.
Assuming the same sales each year, and a 15% annual rate of return, what sales volume (per year) is needed to break even (in the sense of having a zero NPV)? You can assume that all cash flows occur at the end of each year, and you may use Excel – no printouts are needed.
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