The Taj Mahal Tour Company Proposes to Invest $3 Million

The Taj Mahal Tour Company proposes to invest $3 million in a new tour package project.Fixed costs are $1 million per year.The tour package costs the company $500 to produce and can be sold at $1500 per package to tourists.This tour package will last for the next five years.If the cost of capital is 20%,what is the NPV break-even number of tourists per year? (Ignore taxes.Round to the nearest 1,000.)

A) 1,000
B) 2,000
C) 3,000
D) 4,000First,find the annual cash flow that justifies a $3 million investment using the equivalent annual cost (EAC) method.The 5-year annuity factor @ 20% equals 2.9906.EAC = $3 million/2.9906 = $1.00 million.The tour must net this amount of cash flow each year.Given $1M of annual fixed costs,let X = the annual sales rate: (X) × (1500 - 500) - 1,000,000 = 1,000,000.X (1000) = 2,000,000;