Which of the following statements are correct concerning the present value break-even point of a project?
I. The present value of the cash inflows equals the amount of the initial investment.
II. The payback period of the project is equal to the life of the project.
III. The operating cash flow is at a level that produces a net present value of zero.
IV. The project never pays back on a discounted basis.
A) I and II only
B) I and III only
C) II and IV only
D) III and IV only
E) I, III, and IV only

Question

Quizplus · Accepted Answer

I. This is correct. The present value of the cash inflows should equal the present value of the initial investment for the project to break even.
II. This is incorrect. The present value break-even point does not necessarily correspond to the payback period.
III. This is correct. The present value break-even point is when the net present value (NPV) of the project is zero, which means that the operating cash flow is at a level that produces a zero NPV.
IV. This is incorrect. If the present value of the cash inflows equal the initial investment, then the project does pay back on a discounted basis.

Which of the Following Statements Are Correct Concerning the Present