Calculate the economic break-even level of sales for a project requiring an investment of $3 million and providing annual cash flows equal to 15% of sales less $250,000. None of the initial investment is recoverable. Assume the project will generate these cash flows for 10 years and the discount rate is 10%.
A) $3,254,890
B) $3,504,890
C) $4,921,575
D)$1,686,667

Question

Quizplus · Accepted Answer

$3m = [(Sales × 0.15) - $250,000]{(1/0.10) - [1/0.10(1.10)¹⁰]}; Sales = $4,921,575

Calculate the Economic Break-Even Level of Sales for a Project