Corporate Finance
12th Edition
ISBN: 9781259918940
Author: Ross, Stephen A.
Publisher: Mcgraw-hill Education,
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Question
Chapter 7, Problem 5CQ
Summary Introduction
To discuss: Whether the project reaches accounting break-even point, cash break-even point, or financial break-even point based on the given statement.
Statement:
A firm considers a new project which needs an (initial) primary investment with sales, variable costs, and fixed costs.
Introduction:
Break-even point refers to the point where the company incurs no loss or no profit, and it indicates the required volume of sales to cover all operating expenses.
Accounting break-even point refers to the point where the company faces zero profits.
Cash break-even point occurs when minimum revenue from sales is required to fetch the business with the positive cash flows.
Financial break-even point refers to the point of earnings before interest and taxes (EBIT), which is equal to fixed financial cost inclusive of preference dividend and interest.
Summary Introduction
To discuss: The reason for the above order.
Summary Introduction
To discuss: Whether the above mentioned order is always applicable.
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Students have asked these similar questions
Assume a project has a discounted payback that equals the project's life. The project's sales quantity must be at
which one of these break-even points?
Select one:
O a. Accounting
O b. Leveraged
O c.
Marginal
O d.
Cash
Oe. Financial
When the net present value of a project is equal to zero, the project is operating at the
Group of answer choices
minimum possible level of production.
maximum possible level of production.
financial break-even point.
cash break-even point.
accounting break-even point.
Which of the following would cause a project to have a lower net present value, thereby making the project less appealing?
A. The discount rate increases
B. The cash flows are extended over a longer period of time.
C. The investment cost decreases without affecting the expected income and life of the project.
d. The cash flows are accelerated and the project life is correspondingly shortened.
Chapter 7 Solutions
Corporate Finance
Ch. 7 - Forecasting Risk What is forecasting risk? In...Ch. 7 - Sensitivity Analysis and Scenario Analysis What is...Ch. 7 - Prob. 3CQCh. 7 - Break-Even Point As a shareholder of a firm that...Ch. 7 - Prob. 5CQCh. 7 - Real Options Why does traditional NPV analysis...Ch. 7 - Real Options The Mango Republic has just...Ch. 7 - Prob. 8CQCh. 7 - Prob. 9CQCh. 7 - Project Analysis You are discussing a project...
Ch. 7 - Sensitivity Analysis and Break-Even Point We are...Ch. 7 - Prob. 2QAPCh. 7 - Prob. 3QAPCh. 7 - Prob. 4QAPCh. 7 - Prob. 5QAPCh. 7 - Prob. 6QAPCh. 7 - Prob. 7QAPCh. 7 - Prob. 8QAPCh. 7 - Prob. 9QAPCh. 7 - Prob. 10QAPCh. 7 - Prob. 11QAPCh. 7 - Prob. 12QAPCh. 7 - Prob. 13QAPCh. 7 - Prob. 14QAPCh. 7 - Prob. 15QAPCh. 7 - Prob. 16QAPCh. 7 - Prob. 17QAPCh. 7 - Prob. 18QAPCh. 7 - Prob. 19QAPCh. 7 - Prob. 20QAPCh. 7 - Prob. 21QAPCh. 7 - Prob. 22QAPCh. 7 - Prob. 23QAPCh. 7 - Prob. 24QAPCh. 7 - Prob. 25QAPCh. 7 - Prob. 26QAPCh. 7 - Prob. 28QAPCh. 7 - Prob. 29QAPCh. 7 - Prob. 30QAP
Knowledge Booster
Similar questions
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- Which of the following statements is CORRECT? a. The NPV profile graph for a normal project will generally have a positive (upward) slope as the life of the project increases. b. An NPV profile graph shows how a project's payback varies as the cost of capital changes. O c. An NPV profile graph is designed to give decision makers an idea about how a project's contribution to the firm's value varies with the cost of capital. d. An NPV profile graph is designed to give decision makers an idea about how a project's risk varies with its life. e. We cannot draw a project's NPV profile unless we know the appropriate WACC for use in evaluating the project's NPV.arrow_forwardBasic NPV methods tell us that the value of a project today is NPV0. Time value of money issues also lead us to believe that if we choose not to do the project that it will be worth NPV1 one period from now, such that NPV0 > NPV1. Why then do we see some firms choosing to defer taking on a project?arrow_forwarda. They payback period of project A is ___ years (round to two decimal places) The payback period of project B is ____ years. (round to two decimal places) According to the payback method, which project should the firm choose? b. The NPV of project A is $___ The NPV of project B is $___ c. The IRR of project A is ___ The IRR of project B is ___ d. Make a reccomendationarrow_forward
- a) the payback period is how many years? b) the project meets/does not eat the benchmark?arrow_forwardWhat should a manager do with a project that has two internal rates of return (IRRs)? O a. Do the project if the higher of the two IRRs exceeds the cost of capital. O b. Do the project if the lower of the two IRRS exceeds the cost of capital. Oc. Choose the IRR that looks the most reasonable, and do the project if this chosen IRR is greater than the cost of capital. Od. Abandon the project, as it involves unconventional cash flows. O e. Do the project if the net present value of the project is greater than zero.arrow_forwardConsider the relationship between a project’s net present value (NPV), its internal rate of return (IRR), and a company’s cost of capital. For each scenario that follows, indicate the relative value of the unknown. If cost of capital is unknown, indicate whether it would be higher or lower than the stated IRR. If NPV is unknown, indicate whether it would be higher or lower than zero. Project 1 is shown as an example.arrow_forward
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