Question
A company wishes to buy new equipment for $12,500. The equipment is expected to generate an additional $4,100 in cash inflows for six years. All
A company wishes to buy new equipment for $12,500. The equipment is expected to generate an additional $4,100 in cash inflows for six years. All cash flows occur at year-end. A bank will make a $22,000 loan to the company at a 13% interest rate so that the company can purchase the equipment. Use the table below to determine break-even time for this equipment:
Year | Present Value of 1 at 13% |
---|---|
0 | 1.0000 |
1 | 0.8850 |
2 | 0.7831 |
3 | 0.6931 |
4 | 0.6133 |
5 | 0.5428 |
6 | 0.4803 |
Multiple Choice
Break-even time is between two and three years.
Break-even time is between three and four years.
Break-even time is between four and five years.
Break-even time is between five and six years.
This project will never break-even.
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