What effect will a reduction in the cost of capital have on the accounting break-even level of revenues?
A)it raises the break-even level.
B)it reduces the break-even level.
C)it has no effect on the break-even level.
D)this cannot be determined without knowing the length of the investment horizon.

Question

Quizplus · Accepted Answer

The accounting break-even level of revenues is determined by fixed costs, variable costs, and sales price per unit, not by the cost of capital. Therefore, a reduction in the cost of capital does not affect the accounting break-even level.

What Effect Will a Reduction in the Cost of Capital