Commodore Motors management is considering a project to produce toy cars.
The project would require an initial outlay of $100,000 and have an expected life of 10 years.
Management estimates that each year during the life of the project depreciation and amortization would be $8000,
capital expenditures would be $4000,
additions to working capital would be $2000,
and fixed costs would be $3000.
Also, each toy car would sell for $15 and cost $7 to produce.
Finally, the cost of capital for the project would be 12 percent,
cash flow from the project would be taxed at a 25 percent rate,
and the assets would be depreciated to a salvage value of $0.
How many units must be sold each year in order for this project to break even from an economic standpoint?