An online commercial directory service must decide between composing the ads for its clients inhouse or paying a production company to compose them. To develop the ads in-house, the company will have to purchase computers, printers, and a database management system at an estimated cost of $42,000. This equipment will have a useful life of 3 years, after which it will be sold for $2000. The employee who creates the ads will be paid $55,000 per year. In addition, each ad will have an average cost of $10. Alternatively, the company can outsource development at a flat fee of $21 per ad. At an interest rate of 10% per year, how many ads must the company sell each year for the options to just break even?

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
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An online commercial directory service must decide
between composing the ads for its clients inhouse
or paying a production company to compose
them. To develop the ads in-house, the company
will have to purchase computers, printers, and a
database management system at an estimated cost
of $42,000. This equipment will have a useful life
of 3 years, after which it will be sold for $2000.
The employee who creates the ads will be paid
$55,000 per year. In addition, each ad will have an
average cost of $10. Alternatively, the company
can outsource development at a flat fee of $21 per
ad. At an interest rate of 10% per year, how many
ads must the company sell each year for the options
to just break even?

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