Finance for Managers - GVP8 - 05-11-21 - Sect1 Module 5

To determine this, we must first calculate the present value of net cash flows. The formula for this is net cash inflow/r-g. Calculation: $109,000/0.12-0.051 = 109,000/0.069 = $1,579,710.144 We must then calculate the NPV of the project which is the present value of cash inflows minus the outflows. Calculation: $1,579,710.14-$1,425,000= $154,710.14, the business can be started as it has a positive NPV. Break even growth rate will be calculated when the NPV equals zero. Calculation: -1,425,000 + $109,000/0.12-g= 1,425,000= 109,000/0.12-g 1,425,000 x (0.12-g)=109,000 171,000-1,425,000g= 109,000 G= 109,000-171,000/1,425,000= 0.0435= 4.35% Constant growth rate of 4.35% will cause firm to break even.