Approximately how much was paid to invest in a project that has an NPV break-even level of sales of $5 million, cash flows determined by:.1 × sales - $300,000, a six-year life, and an 8 percent discount rate? (use the values in dollar)
A)$416,667
B)$924,576
C)$1,016,678
D)$2,311,450

Question

Quizplus · Accepted Answer

To calculate the amount paid to invest in the project, we need to find the present value of the cash flows that will be generated by the project.
Using the formula for NPV:
NPV = Present Value of Cash Inflows - Present Value of Cash Outflows
Since the project has a break-even level of sales of $5 million, we can calculate the cash flows for that level of sales:
Cash Flow = 0.1 × $5,000,000 - $300,000 = $200,000
To find the present value of this cash flow stream, we need to use a present value annuity factor. Using a financial calculator or spreadsheet, we can find that the present value annuity factor for a six-year project with an 8% discount rate is 4.623.
Present Value = $200,000 × 4.623 = $924,576
Therefore, the amount paid to invest in the project would be $924,576. 
The correct answer is B.

Approximately How Much Was Paid to Invest in a Project