Freeport McMoRan engineers estimated that the capital investment necessary for recovering valu­able metals (nickel, silver, gold, etc.) from a cop­per refinery’s wastewater would be $150 million. The equipment is expected to have a useful life of 10 years with no salvage value. The amount of metal currently discharged in the wastewater is 12,500 pounds per year. The recovered metals are expected to have a selling price of $250 per pound. The efficiency relation of the recovery operation is represented by X 0.5, where X represents the effi­ciency in percentage. What value of X is necessary for the company to break even? Assume i = 10% per year.

Question

The costs and revenue projections for a new prod­uct are estimated. What is the estimated profit at a production rate of 20% above breakeven?
Fixed cost = $500,000 per year
Production cost per unit = $200
Revenue per unit = $250

Answer 1

0 = -150,000,000(A/P,10%,10) + 12,500(250)X^0.5
= -150,000,000(0.16275) + 3,125,000X0.5
X^0.5 = 24,412,500/3,125,000
= 7.812

X = 61%