Miller River Light is evaluating a project that will require an initial investment of $350,000. Miller River uses a 12% discount rate for capital projects of this type. What level of operating cash flows over a period of 5 years will cause the project to reach break-even NPV? Assume cash flows come in the form of an end-of-the-year annuity.
A) $70,000.00
B) $97,093.41
C) $92,329.12
D) $86,690.54

Question

Quizplus · Accepted Answer

To calculate the break-even NPV, we need to set the NPV equal to zero and solve for the annual cash flows. Using the annuity formula, we get:

0 = -$350,000 + (C*[1-(1/1.12^5)])/0.12

Where C is the annual cash flow.

Solving for C, we get:

C = $97,093.41

Therefore, the level of operating cash flows over five years that will cause the project to reach break-even NPV is $97,093.41, which is option B.

Miller River Light Is Evaluating a Project That Will Require