Brookfield Heavy Equipment is considering a project that will produce after tax cash of $40,000 per year for 5 years. The project will require an initial investment of $144,191. At what discount rate will the project reach break-even NPV?
A) 8%
B) 10%
C) 12%
D) 11.11%

Question

Quizplus · Accepted Answer

To calculate the break-even NPV, we need to find the discount rate that makes the NPV equal to zero. We can use the NPV formula to solve for the discount rate:

NPV = -initial investment + (cash flow / discount rate) * [(1 - (1 + discount rate)^-n ) / discount rate]
0 = -144,191 + (40,000 / r) * [(1 - (1 + r)^-5) / r]

We can solve this equation for r using a financial calculator or a spreadsheet program like Excel. The discount rate that makes the NPV equal to zero is approximately 12%. Therefore, the answer is C.

Brookfield Heavy Equipment Is Considering a Project That Will Produce