Hello Ashley ,
Your point is fair and the interviewer would be happy to see that a candidate has such a critical reasoning.
In this case considering the depreciation as a fixed cost in the case is just a "mathematical trick" to simplify the calculation. I don't get why this would change the final solution, you could consider the 5-years period that will be repeat in the time with the same dynamic:
- First year P/L calculation: (Price – VC) * amount - overhead - investment
- 2-5 years P/L calculation: (Price – VC) * amount - overhead
- Total profit/loss calculation= "First year P/L" + 4* "2-5 years P/L"= 5* ((Price – VC) * amount - overhead ) - investment
Now you have to put this final expression equal to 0 and you have:
- 5* ((Price – VC) * amount - overhead ) - investment = 0
- Dividing by five --> (Price – VC) * amount - overhead - investment / 5 = 0
And this final expression is the same of the official solution ;)
I know that talking about math with this answer's format could be confusing, contact me if you need more help and I will explain you step by step using a proper visual.
Please notice that you could also take into account the NPV of each cash flow but this would over complicate the case (99% of interviewer will ask you not to consider that). BUt again, state clearly to your interviewer that you could also consider the NPV, he will be happy to know that you thought about this complication.
Hope it helps,