If the level of sales is less than that calculated as the economic break-even level, then the:
A) project will break even in accounting terms.
B) project's EVA will be greater than zero but less than the opportunity cost of capital.
C) project will have a negative EVA.
D)discount rate should be reduced.

Question

Quizplus · Accepted Answer

Economic break-even level is that level of sales where EVA becomes zero. If the level of sales is less than the economic break-even level, EVA will be negative indicating that the project is not generating enough return to cover the cost of capital. Hence, the correct answer is C. The other choices are not appropriate in this context.

If the Level of Sales Is Less Than That Calculated