Answer to Question #222258 in Finance for Sonu

Question

) A project in Malaysia costs $10,000,000. Over the next 4 years, the project will generate 

operating cash flows of $2700,000, $2700,000, $3420,000 and $3780,000 measured in 

today’s dollars using a required rate of return of 15 percent. What is the break-even salvage 

value of this project?

Answer 1

Project cost = $10,000,000

Total operating cash flows = 2,700,000+2,700,000+3,420,000+3,780,000

= 12,600,000

No. of years = 4

Rate of return = 15%

Calculation:

Break−even salvage value =

 (Total operating cash flows - Project cost) × (1 + Rate of return)^{No of years}

Break−even salvage value$= (12600000 − 10000000) × (1 + \frac{15}{100})^4$

Break−even salvage value = $4,547,416.25