Webster Iron Works started a new project last year. As it turns out, the project has been operating at its accounting break-even level of output and is now expected to continue at that level over its lifetime. Given this, you know that the project:
A) will never pay back.
B) has a zero net present value.
C) is operating at a higher level than if it were operating at its cash break-even level.
D) is operating at a higher level than if it were operating at its financial break-even level.
E) is lowering the total net income of the firm.

Question

Quizplus · Accepted Answer

At the accounting break-even level, the project covers all its accounting costs, including depreciation, but not necessarily its cash costs. Therefore, it operates at a higher level than the cash break-even level, which only covers cash costs.

Webster Iron Works Started a New Project Last Year