Therefore, instead of asking what sales must be to produce an accounting profit, it is more

useful to focus on the point at which NPV switches from negative to positive. This is called the

NPV break$-$even point.

The cash flows of the superstore project in each year will depend on sales as follows:

This cash flow will last for $12$ years. So to find its present value we multiply by the $12-$year

annuity factor. With a discount rate of $8\%,$ the present value of $$1$ a year for each of $12$ years is

$$7\mathrm{.}536.$ Thus the present value of the cash flows is

$PV($ cash flows $)=7\mathrm{.}536(\mathrm{.}1125$ sales $-$$$1\mathrm{.}02$ million $)$

The project breaks even in present value terms $($that is$,$ has a zero NPV$)$ if the present value of

these cash flows is equal to the initial $$5\mathrm{.}4$ million investment. Therefore, break$-$even occurs

when

$PV($ cash flows $)=$ investment

$7\mathrm{.}536(\mathrm{.}1125$ sales $-$$$1\mathrm{.}02$ million $)=$$$5\mathrm{.}4$ million

$\mathrm{.}8478$ sales $-$$$7\mathrm{.}69$ million $=$$$5\mathrm{.}4$ million

Sales $=\frac{5\mathrm{.}4+7\mathrm{.}69}{.}8478=$$$15\mathrm{.}4$ million

Therefore, the store needs sales of $$15\mathrm{.}4$ million a year for the investment to have a zero NPV$.$

This is more than $18\%$ higher than the point at which the project has zero profit. Can you break this down in a more simple terms. where did the $\mathrm{.}8478$ and $7\mathrm{.}69$ come from? show the full working of the cash flow as well. Thankyou.