Problem:
The Solar Company proposes to invest $5 million in a new plant. Fixed costs are $2 million per year. A solar calculator costs $5 per unit to manufacture and is sold for $20 per unit.
Required:
If the plant lasts for 3 years and the cost of capital is 12%, what is the break-even level of annual sales? (i.e. NPV=0)(Assume that revenues and costs occur at the end of each year. Assume no taxes.)
Note: Please provide reasons to support your answer.