Estimate the break even point for Project A if the discount rate 7% is taken (se

Question

Estimate the break even point for Project A if the discount rate 7% is taken (see Table 1A2). Show your working in the space provided.

Break even point for Project A = ____________ (give at least one decimal place).

Working:

2 Year 3 3 4 A2) Project A: Refurbishment Discount Factor (at 7%) Expected Benefit Present Value (PV) of Benefits Expected Costs Present Value (PV) of Costs PV of Net Benefit Cumulative (NPV) Year 0 Year 1 Year 2 Year 4 1.000000_0.934579 0.8734390.816298 0.7628950.712986 S0 $50,000 $70,000$90,000 $80,000 $70,000 0 $46,729 $61,141$73,467$61,032$49,909 $50,000$30,000$40,000$50,000 $50,000$60,000 $50,000 $28,037 $34,938$40,815$38,145$42,779 $7,130 $90,000$31,308 $5,105$27,547$50,434$57,563 $50,000$18,692 $26,203$32,652$22,887

Explanation / Answer

The breakeven point is a point at which Cumulative NPV of the crosses zero.

Here, the cumulative NPV crosses zero between second and third year.

The exact breakeven point can be found on pro rate basis as below:

Breakeven Point = 2 Years + (0-(-$5,105))/($27,547 - (-$5,105)) = 2.16 Years

Hence Breakeven point is 2.16 years.

Related Questions

Navigate

• Browse (All)
• Browse E
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.