Boats And Boating

How to calculate NPV breakeven point?

The question

Campbell is considering investing in a new boat, the project is risky and the “most likely cash flows” are detailed below.

Cost of boat £12,000,000
Annual Sales (30,000 tons at £250 per ton) £7,500,000

Anual costs (excluding depreciation)
Crew £4,000,000
Fuel £1,000,000
Other £500,000

Campbell have a discount rate of 10%

Estimate NPV break-even point either graphically or by interpolation in terms of the sale price.

cost is at 12,000,000

sales is at 7,500,000 less 5,500,000 annual costs, net cash flows are at 2,000,000 per year

assuming the cash flows are after tax, and discount rate is compounded on a per annum basis

simply multiply 2 million on the NPV per year for the next 12 years, add them up and you will get 12,289,134.21

NPV of compunded cashflow after 12 years is actually 289,134.21

NPV breakeven point is at less than 12yrs but more than 11 years.

actually on the 12th year you would only need about 1,250,000 net cash flow to break even

if this is not clear send me a ym, ill send you the excel file

id dangerously_inluv

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