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:
$$\begin{array}{c}
&\text { Present Value }\
\text { Year } & \text { of 1 at } 10 \% \
0 & 1.0000 \
1 & 0.9091 \
2 & 0.8264 \
3 & 0.7513 \
4 & 0.6830 \
5 & 0.6209 \
6 & 0.5645
\end{array}$$

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 $\begin{array} { ccccc } 
& & & &\text{Curnulative} \
& \text{Cash}& \text{Present Value}& \text{PV of Cash }&\text{PV of Cash} \
\text{Year} &\text{Flows} & of ~1 ~at~10 \% & \text { Flows } & \text { Flows } \
0 & \$ ( 9 , 0 0 0 ) & 1.0000 & \$ ( 9,000 ) & \$ ( 9,000 ) \
1 & 2,800 & 0.9091 & 2,545 & ( 6,455 ) \
2 & 2,800 & 0.8264 & 2,314 & ( 4,141 ) \
3 & 2,800 & 0.7513 & 2,104 & ( 2,037 ) \
4 & 2,800 & 0.6830 & 1,912 & ( 125 ) \
5 & 2,800 & 0.6209 & 1,739 & 1,614 \
6 & 2,800 & 0.5645 & 1,581 & 3,195
\end{array}$ Break-even time is between four and five years (4 years + 125/1739 = 4.07 years)

A Company Wishes to Buy New Equipment for $9,000 A) Break-Even Time Is Between Two and Three Years