## Payback

A toy company plans on launching a new product using injection molding for mass production. An internal review resulted in the below estimates:

Initial Investment: $110,000

Cost per item: $20

Sale price per item: $55

Production volume (equally distributed throughout the year):

Year 1: 500 units

Year 2: 750 units

Year 3: 750 units

Year 4+: 1,000 units

Ignoring inflation, interest, depreciation etc, what is the estimated year of production in which the company will break even with the new toy line up?

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__**Hint**

**Hint**

The initial cost is $110,000. Net profit from each unit sale is $55 - $20 = $35.

The initial cost is $110,000. Net profit from each unit sale is $55 - $20 = $35. We can solve the problem by determining each year's profit.

Year 1: 500 units x $35 = $17,500 (cumulative $17,500)

Year 2: 750 units x $35 = $26,250 (cumulative $43,750)

Year 3: 750 units x $35 = $26,250 (cumulative $70,000)

Year 4: 1,000 units x $35 = $35,000 (cumulative $105,000)

Year 5: 1,000 units x $35 = $35,000 (cumulative $140,000)

Sometime in early Year 5 the cumulative toy sale profits will exceed the project's initial investment.

Sometime in early Year 5 the cumulative toy sale profits will exceed the project's initial investment.