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Can you help me by solving this problem please?
Niko has purchased a brand new machine to produce its high flight line of shoes. The machine has an economic life of five years. The depreciation is an equal annual amount, and there is no salvage value. The machine costs Rs. 3,00,00,000. The sales price per pair of shoes is Rs. 6,000 while the variable cost is Rs. 800. Rs. 1,00,00,000 of fixed cost per year is attributed to the machine. Assuming the discount rate of 8%. What is the present value Break-even point?
Thank you very much.
Sridhar
Please do not simply set me questions and expect me to provide a solution.
You must have an answer in the same book in which you found the question and so you should ask about whatever it is in the answer that you are not clear about, and then I will explain.
(Unless you have been set this as a test, in which case we certainly do not do your homework for you 🙂 )I assume that you have watched my free lectures on discounting and that therefore you know how to discount. So all you need to do is use a bit of simple algebra. Let X be the number of pairs of shoes sold per year, then discount in the normal way. You will get an NPV is terms of X. Put this equal to zero and calculate therefore what X is.
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