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With this in mind, note that the key observation is the following: the lowest possible price we can profitably charge will result in a zero NPV at 20 percent. The reason is that at that price, we earn exactly 20 percent on our investment.

Given this observation, we first need to determine what the operating cash flow must be for the NPV to be equal to zero. To do this, we calculate the present value of the $43,050 nonoperating cash flow from the last year and subtract it from the $100,000 initial investment:

$100,000 - 43,050/1.204 = $100,000 - 20,761 = $79,239 Once we have done this, our time line is as follows:

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