Last year, a toy manufacturer introduced a new toy truck that was a huge success. The company invested $5.50 million in a plastic injection molding machine (which can be sold for $5 million immediately) and $300,000 in plastic injection molds specifically for the toy (not valuable to anyone else). The cost of labor and materials necessary to make each truck runs about $3. This year, a competitor has developed a similar toy, significantly reducing demand for the toy truck. Now, the original manufacturer is deciding whether it should continue production of the toy truck.
If the estimated demand is 100,000 trucks, the break-even price is
per truck.
A university spent $1.5 million to install solar panels atop a parking garage. These panels will have a capacity of 800 kilowatts (kW) and have a life expectancy of 20 years. Suppose that the discount rate is 20%, that electricity can be purchased at $0.10 per kilowatt-hour (kWh), and that the marginal cost of electricity production using the solar panels is zero.
Hint: It may be easier to think of the present value of operating the solar panels for 1 hour per year first.
Approximately how many hours per year will the solar panels need to operate to enable this project to break even?
3,850.40
5,775.60
2,310.24
3,080.32