You would like to know the minimum level of sales that is needed for a project to be accepted based on its net present value. To determine that sales level you should compute the:
A) contribution margin per unit and set that margin equal to the fixed costs per unit.
B) degree of operating leverage at the current sales level.
C) accounting break-even point.
D) cash break-even point.
E) financial break-even point.

Question

Quizplus · Accepted Answer

The financial break-even point takes into account the cost of capital and calculates the sales level necessary to cover all costs and earn a desired rate of return. It is the most comprehensive measure of break-even for capital-intensive projects and thus provides the minimum level of sales necessary for a project to be accepted based on its net present value. Options A, B, C, and D are other measures of break-even point that do not take into account the cost of capital and are less comprehensive.

You Would Like to Know the Minimum Level of Sales