You are considering starting a business that will last only three years. The business will bring in $200,000 at the end of year 1, $220,000 at the end of year 2, and $380,000 at the end of year 3. The cash flow for year 3 includes the net proceeds (after tax) from the sale of the plant and equipment. The interest rate appropriate for the cash flows is 7% per year—for all the three years. (When answering the questions below, first draw the time line diagram.)
a. Starting the business requires investing on plant and equipment now—time zero. What is the maximum amount of money you will invest now in order to break-even? (i.ie, the business will result in no loss or gain.)