All else equal, an increase in fixed costs
A)increases the break-even point based on NPV and decreases the accounting break-even point.
B)decreases the break-even point based on NPV and decreases the accounting break-even point.
C)increases the accounting break-even point and decreases the break-even point based on NPV.
D)increases the break-even point based on NPV and increases the accounting break-even point.

Question

Quizplus · Accepted Answer

An increase in fixed costs will increase the break-even point based on NPV since the company will need to sell more units to cover the fixed costs and reach the desired net present value. Additionally, an increase in fixed costs will also increase the accounting break-even point since the company will need to sell more units to cover both fixed and variable costs and reach the point where it is earning a profit. Therefore, the correct choice is D, which states that an increase in fixed costs will increase both the break-even point based on NPV and accounting break-even point.

All Else Equal, an Increase in Fixed Costs