A project that simply breaks even on an accounting basis gives you your money back but does not cover the opportunity cost of the capital tied up in the project.

Question

Quizplus · Accepted Answer

Breaking even on an accounting basis means that the revenues generated by the project are equal to the expenses incurred, so there is no profit or loss. However, it does not take into account the cost of the capital invested in the project, which represents the opportunity cost of using that capital for other investments that could have provided a higher return. Therefore, a project that simply breaks even on an accounting basis does not cover the opportunity cost of the capital tied up in the project.

A Project That Simply Breaks Even on an Accounting Basis