Which of the following does NOT correctly complete this sentence: A project that just breaks even in an accounting sense ___________________.
A) Will lose money in a financial sense.
B) Will result in zero taxes paid.
C) Will not contribute to net income for the firm.
D) Will have a payback period less than the life of the project.
E) Will have operating cash flow equal to depreciation expense.

Question

Quizplus · Accepted Answer

A project that just breaks even in an accounting sense means it covers its costs but does not generate profit, thus it will not contribute to net income (C), will result in zero taxes paid (B), and will have operating cash flow equal to depreciation expense if all its income goes to cover expenses including depreciation (E). It will lose money in a financial sense when considering opportunity costs and the time value of money (A). However, stating it will have a payback period less than the life of the project (D) is incorrect because a break-even project in an accounting sense does not imply any specific relation to its payback period relative to its life; it merely indicates it covers its costs, not how quickly it recovers its initial investment.

Which of the Following Does NOT Correctly Complete This Sentence