Valerie just completed analyzing a project. Her analysis indicates that the project will have a six-year life and require an initial cash outlay of $120,000. Annual sales are estimated at $189,000 and the tax rate is 21 percent. The net present value is negative $120,000. Based on this analysis, the project is expected to operate at the:
A) maximum possible level of production.
B) minimum possible level of production.
C) financial break-even point.
D) accounting break-even point.
E) cash break-even point.

Question

Quizplus · Accepted Answer

The negative net present value indicates that the project is not expected to generate enough cash to cover the initial cash outlay of $120,000. Therefore, the project is expected to operate at the cash break-even point where revenues are equal to expenses, but there is no profit left to cover the initial cash outlay.

Valerie Just Completed Analyzing a Project