A company wishes to buy new equipment for $85,000. The equipment is expected to

Question

A company wishes to buy new equipment for $85,000. The equipment is expected to generate an additional $35,000 in cash inflows for four years. All cash flows occur at year-end. A bank will make an $85,000 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.

Break-even time is longer than 4 years. Break-even time is between 1 and 2 years. Break-even time is between 2 and 3 years. Break-even time is between 3 and 4 years. This project will never break-even.

Explanation / Answer

Just took the test: Answer was; C: Break-even time is between 2 and 3

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