Question

Tangshan Mining​ Company, with a cost of capital of 10​ percent, is considering investing in project​ A, with an initial investment of​ $1,000,000. Project A is expected to provide equal cash inflows over its 15 year useful life. Based on this​ information, the breakeven cash inflow for the project is​ $_______.

Answer 1

Answer:

the breakeven cash inflow for the project is $131474

Explanation:

given data

cost of capital = 10​ percent

initial investment =​ $1,000,000

useful life = 15 year

to find out

the breakeven cash inflow for the project

solution

first we consider here annual cash inflows that is =  x

now break even point is the one at which the net present value of the project  =  0

so we can say that here  

Present value of cash inflows - Present value of cash outflows = 0   .................1

here we know Present value of cash inflows = x  × PVAF ( 10%,15 years)

Present value of cash inflows = x  ×  7.6060

put value in equation 1 we get

x  ×  7.6060 - $1,000,000  = 0

solve and we get x

x = $\frac{1,000,000}{7.6060}$

x = $131474

so the breakeven cash inflow for the project is $131474