Break-even time. Hampton Corporation’s research and development department is presenting a proposal for new product research....
Break-even time. Hampton Corporation’s research and development department is presenting a proposal for new product research. The new product will require research, development, and design investments of $6.0 million (discounted cash flow). Sales will generate an annual discounted net cash flow of $2.0 million starting in Year 5.
Required:
- Calculate the break-even time for the new product.
b. What can Hampton Corporation do to reduce break-even time?
Homework Answers
Solution:
a. Break-even time = 4yr + Total discounted investment / Net annual discounted cash flow
= 4yr + $6.0 million / $2.0 million
= 7 years
b. Hampton Corporation should make efforts to increate its net annual cash flows through putting efforts to increase annual revenues.This will reduce its break-even time (i.e. cost of investments will be recovered in lesser time than earlier)
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