A shoe manufacturer is evaluating new equipment that would custom fit athletic shoes. The new equipment costs $115,000 and will generate $46,000 in net cash flows for five years. (Negative cumulative cash flows should be indicated with a minus sign.) Determine the break-even time for this equipment. **Table: Present Value and Net Cash Flow Analysis**This table is used to calculate the present value of net cash flows over a five-year period, considering an initial investment and a discount rate of 12%.| Year | Net Cash Flow | Present Value of 1 at 12% | Present Value of Net Cash Flows | Cumulative Present Value of Net Cash Flows ||-------------------|---------------|---------------------------|----------------------------------|---------------------------------------------|| Initial Investment| $(115,000) | 1.0000 | $(115,000) | $(115,000) || Year 1 | 46,000 | 0.8929 | | || Year 2 | 46,000 | 0.7972 | | || Year 3 | 46,000 | 0.7118 | | || Year 4 | 46,000 | 0.6355 | | || Year 5 | 46,000 | 0.5674 | | |**Instructions:**- Calculate the Present Value of Net Cash Flows for each year by multiplying the Net Cash Flow by the Present Value of 1 at 12%.- Add the Present Value of Net Cash Flows each year to find the Cumulative Present Value of Net Cash Flows.- Round break-even time answers to two decimal places.This analysis will help determine when the investment will break even.

Break even point (BEP): Breakeven is the point where total expenses are equal to total revenue. at…

A shoe manufacturer is evaluating new equipment that would custom fit athletic shoes. The new equipment costs $115,000 and will generate $46,000 in net cash flows for five years. (Negative cumulative cash flows should be indicated with a minus sign.) Determine the break-even time for this equipment.

A shoe manufacturer is evaluating new equipment that would custom fit athletic shoes. The new equipment costs $115,000 and will generate $46,000 in net cash flows for five years. (Negative cumulative cash flows should be indicated with a minus sign.) Determine the break-even time for this equipment.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

A shoe manufacturer is evaluating new equipment that would custom fit athletic shoes. The new equipment costs $115,000 and will generate $46,000 in net cash flows for five years. (Negative cumulative cash flows should be indicated with a minus sign.)

Determine the break-even time for this equipment.

**Table: Present Value and Net Cash Flow Analysis**

This table is used to calculate the present value of net cash flows over a five-year period, considering an initial investment and a discount rate of 12%.

| Year | Net Cash Flow | Present Value of 1 at 12% | Present Value of Net Cash Flows | Cumulative Present Value of Net Cash Flows |
|-------------------|---------------|---------------------------|----------------------------------|---------------------------------------------|
| Initial Investment| $(115,000) | 1.0000 | $(115,000) | $(115,000) |
| Year 1 | 46,000 | 0.8929 | | |
| Year 2 | 46,000 | 0.7972 | | |
| Year 3 | 46,000 | 0.7118 | | |
| Year 4 | 46,000 | 0.6355 | | |
| Year 5 | 46,000 | 0.5674 | | |

**Instructions:**

- Calculate the Present Value of Net Cash Flows for each year by multiplying the Net Cash Flow by the Present Value of 1 at 12%.
- Add the Present Value of Net Cash Flows each year to find the Cumulative Present Value of Net Cash Flows.
- Round break-even time answers to two decimal places.

This analysis will help determine when the investment will break even.

Definition Definition Net amount of cash that an entity receives and expends over the course of a given period. For a business to continue operating, positive cash flows are required, and they are also necessary to produce value for investors. Investors in particular prefer to see growing cash flows even after capital expenditures have been paid for (which is known as free cash flow).

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