A company wishes to buy new equipment for $35,000. The equipment is expected to generate an additional $9,600 in cash inflows for seven years. All cash flows occur at year-end. A bank will make a $35,000 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.

Year Present Value 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

7 0.5132

Break-even time is between 3 and 4 years.

Break-even time is between 4 and 5 years.

Break-even time is between 5 and 6 years.

Break-even time is between 6 and 7 years.

This project will never break-even.