Question

Approximately how much was paid to invest in a project that has an NPV break-even level...

Approximately how much was paid to invest in a project that has an NPV break-even level of sales of $5 million? The project has annual cash flows determined by: [0.10 × sales - $300,000], a six-year life, and a 5 percent discount rate? Select one: a. $2,311,450 b. $940,555 c. $983,460 d. $1,015,138 e. $924,580

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1
Breakeven cashflows 0.10*Sales-300000
0.10*5000000-300000
$200,000
Let the initial investment be $x
Year Cashflow ($) Discounting factor @ 5% PV of cashflows ($)
0 -x 1 -x
1 200000 0.952380952 190476.19
2 200000 0.907029478 181405.90
3 200000 0.863837599 172767.52
4 200000 0.822702475 164540.49
5 200000 0.783526166 156705.23
6 200000 0.746215397 149243.08
NPV 1015138.41-x
We know,
Break-even NPV is the point where NPV is zero.
Therefore, equating
1015138.41-x=0
x= 1015138.41
Initial investment= $1015138
Answer: Option D
0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
A project has an NPV of £12,632 when a discount rate of 12% is used and...
A project has an NPV of £12,632 when a discount rate of 12% is used and the same project has an NPV of (£6,935) when a discount rate of 24% is used. The approximate internal rate of return of the project is: Select one: a. 18.5% b. 15.16% c. 20.5% d. 19.75% An investment project costs $10,500 and will generate $4,000 in annual cash flows for five years. What is the exact internal rate of return (IRR)? Select one: a....
How much money would you have in a year if you put $1,000 in the bank...
How much money would you have in a year if you put $1,000 in the bank at an annual interest rate of 3 percent? How much would you have if you left all of that money in the bank for another year and annual interest rates increased to 4 percent in the second year? How much would you loan your brother-in-law if he said he could repay you $100 in six months, $200 in a year, and $500 in two...
A company has the option to invest in project A, project B, or neither (the projects...
A company has the option to invest in project A, project B, or neither (the projects are mutually exclusive and the company has no other investment options). Project A requires an initial investment of $100,000 today and provides cash flows of $35,000 a year for five years. The project will also return back $20,000 in capital in year six. Project B requires a $135,000 investment today and will have cash flows of $40,000 a year for 5 years. The firm’s...
Problem 10-11 Break-Even (LO3) Dime a Dozen Diamonds makes synthetic diamonds by treating carbon. Each diamond...
Problem 10-11 Break-Even (LO3) Dime a Dozen Diamonds makes synthetic diamonds by treating carbon. Each diamond can be sold for $120. The materials cost for a standard diamond is $70. The fixed costs incurred each year for factory upkeep and administrative expenses are $215,000. The machinery costs $2.3 million and is depreciated straight-line over 10 years to a salvage value of zero. a. What is the accounting break-even level of sales in terms of number of diamonds sold? b. What...
A project has the following projected cash flows Year 0- R280,000( investment) Year 1 R70,000 Year...
A project has the following projected cash flows Year 0- R280,000( investment) Year 1 R70,000 Year 2 R100,000 Year 3 R130,000 a) Assuming a discount rate of 10% what is the Net Present Value (NPV) of this project over the 3 year period? b) Based on your answer above, should the project be recommended for acceptance? c) would your answer to b above change if the discount rate was 5%? Why? d) what do you understand by the term nominal...
 LO 3 LO 4 7. Calculating NPV and IRR. A project that provides annual cash...
 LO 3 LO 4 7. Calculating NPV and IRR. A project that provides annual cash flows of $2,620 for eight years costs $9,430 today. Is this a good project if the required return is 8 percent? What if it's 24 percent? At what discount rate would you be indifferent between accepting the project and rejecting it?  LO 4 9. Calculating NPV. For the cash flows in the previous problem, what is the NPV at a discount rate of...
. (NPV,IRR)A company can invest $1,600,000 in a capital budgeting project that will generate the following...
. (NPV,IRR)A company can invest $1,600,000 in a capital budgeting project that will generate the following forecasted cash flows: Year Cash flow 1 $500,000 2 720,000 3 300,000 4 600,000 The company has a 13% cost of capital. a. Calculate the project’s net present value. b. Calculate the project’s internal rate of return. c. Should the firm accept or reject the project? d. What is the value added to the firm if it accepts this proposed investment?
Most Company has an opportunity to invest in one of two new projects. Project Y requires...
Most Company has an opportunity to invest in one of two new projects. Project Y requires a $340,000 investment for new machinery with a six-year life and no salvage value. Project Z requires a $340,000 investment for new machinery with a five-year life and no salvage value. The two projects yield the following predicted annual results. The company uses straight-line depreciation, and cash flows occur evenly throughout each year. (PV of $1, FV of $1, PVA of $1, and FVA...
the quorum company has a prospective 6 year project that requires initial fixed assets costing $963,000,...
the quorum company has a prospective 6 year project that requires initial fixed assets costing $963,000, annual fixed costs of $403,400, variable costs per unit of $123.60, a sales price per unit of $249, a discount rate of 14 percent, and a tax rate of 21 percent. the asset will be depreciated straight-line to zero over the life of the project. explain why as a manager calculating accounting break-even sales quantity and financial break-even sales quantity are important.
A project has an unlevered NPV of $1.5 million. To finance the project, debt is being...
A project has an unlevered NPV of $1.5 million. To finance the project, debt is being issued with associated flotation costs of $60,000. The flotation costs can be amortized over the project's 5-year life. The debt of $10 million is being issued at the market interest rate of 10 percent paid annually, with principal repaid in a lump sum at the end of the fifth year. The firm's tax rate is 21 percent. What is the project's adjusted present value...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT