A company wishes to buy new equipment for $9,000.The equipment is expected to generate an additional $2,800 in cash inflows for six years.All cash flows occur at year-end.A bank will make an $9,000 loan to the company at a 10% interest rate so that the company can purchase the equipment.Use the table below to determine break-even time for this equipment:
$$\begin{array}{l}

\begin{array} { c c }
&\text { Present Value }\
\text { Year } & \text { of 1 at } 10 \% \
0 & 1.0000 \
1 & 0.9091 \
2 & 0.8264 \
3 & 0.7513 \
4 & 0.6830 \
5 & 0.6209 \
6 & 0.5645
\end{array}
\end{array}$$
A.Break-even time is between two and three years.
B.Break-even time is between three and four years.
C.Break-even time is between four and five years.
D.Break-even time is between five and six years.
E.This project will never break-even.

Question

A company wishes to buy new equipment for $9,000.The equipment is expected to generate an additional $2,800 in cash inflows for six years.All cash flows occur at year-end.A bank will make an $9,000 loan to the company at a 10% interest rate so that the company can purchase the equipment.Use the table below to determine break-even time for this equipment:
 $$\begin{array}{l}

\begin{array} { c c } 
&\text { Present Value }\
\text { Year } & \text { of 1 at } 10 \% \
0 & 1.0000 \
1 & 0.9091 \
2 & 0.8264 \
3 & 0.7513 \
4 & 0.6830 \
5 & 0.6209 \
6 & 0.5645
\end{array}
\end{array}$$ 
A.Break-even time is between two and three years.
B.Break-even time is between three and four years.
C.Break-even time is between four and five years.
D.Break-even time is between five and six years.
E.This project will never break-even.

Quizplus · Accepted Answer

The Answer of A company wishes to buy new equipment for $9,000.The equipment is expected to generate an additional $2,800 in cash inflows for six years.All cash flows occur at year-end.A bank will make an $9,000 loan to the company at a 10% interest rate so that the company can purchase the equipment.Use the table below to determine break-even time for this equipment:
 $$\begin{array}{l}

\begin{array} { c c } 
&\text { Present Value }\
\text { Year } & \text { of 1 at } 10 \% \
0 & 1.0000 \
1 & 0.9091 \
2 & 0.8264 \
3 & 0.7513 \
4 & 0.6830 \
5 & 0.6209 \
6 & 0.5645
\end{array}
\end{array}$$ 
A.Break-even time is between two and three years.
B.Break-even time is between three and four years.
C.Break-even time is between four and five years.
D.Break-even time is between five and six years.
E.This project will never break-even.

A Company Wishes to Buy New Equipment for $9,000 ABreak-Even Time Is Between Two and Three Years