Valerie just completed analyzing a project.Her analysis indicates that the project will have a 6-year life and require an initial cash outlay of $320,000.Annual sales are estimated at $589,000 and the tax rate is 34 percent.The net present value is a negative $320,000.Based on this analysis,the project is expected to operate at the:
A)maximum possible level of production.
B)minimum possible level of production.
C)financial break-even point.
D)accounting break-even point.
E)cash break-even point.

Question

Quizplus · Accepted Answer

The net present value being negative implies that the project's expected cash inflows are not enough to cover the initial cash outlay. Therefore, the project's cash flows will need to break-even before any profits can be made. Hence, the project is expected to operate at the cash break-even point.

Valerie Just Completed Analyzing a Project