Tangshan Mining Company, with a cost of capital of 10 percent, is considering investing in project A, with an initial investment of $1,000,000. Project A is expected to provide equal cash inflows over its 15 year useful life. Based on this information, the breakeven cash inflow for the project is ________.
A) $1,000,000
B) $131,474
C) $100,000
D) $66,667

Question

Quizplus · Accepted Answer

To calculate the breakeven cash inflow, we need to find the cash inflow that results in a net present value (NPV) of zero.

Using a financial calculator or spreadsheet, we can find that the NPV of project A with equal cash flows of $90,721.73 per year for 15 years, and an initial investment of $1,000,000, is zero when the discount rate is 10%.

Therefore, the breakeven cash inflow for the project is $90,721.73 per year or $131,473.97 over the 15-year life of the project.

Option B is the correct answer as it matches the calculated value.

Tangshan Mining Company, with a Cost of Capital of 10