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.

Question

Quizplus · Accepted Answer

The present value break-even point refers to the point at which the present value of cash inflows equals the initial investment, which matches statement I. It is not necessarily equal to the project's life, so statement II is incorrect. The operating cash flow required to achieve a net present value of zero is also known as the internal rate of return, which is another way of stating statement III. Lastly, statement IV is incorrect as a project can pay back on a discounted basis, just not necessarily before the present value break-even point. Therefore, the correct statements are I and III, making option B the best choice.

Which of the Following Statements Are Correct Concerning the Present