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Question
A company wishes to buy new equipment for $9,000. The equipment is expected to generate an additional $2,800 in cash inflows for six years. All cash flows occur at year-end. A bank will make an $9,000 loan to the company at a 10% 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 10% |
| 0 | 1.0000 |
| 1 | 0.9091 |
| 2 | 0.8264 |
| 3 | 0.7513 |
| 4 | 0.6830 |
| 5 | 0.6209 |
| 6 | 0.5645 |
A. Break-even time is between two and three years.
B. Break-even time is between three and four years.
C. Break-even time is between four and five years.
D. Break-even time is between five and six years.
E. This project will never break-even.
Answer
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