Question

If a project is at the accounting break-even point with fixed costs of $100,000, the fixed costs would need to _____ to make the project have a positive NPV.

A. Decrease

B. Increase

C. Do nothing because it is already has a positive NPV.

Answer 1

Correct Answer is option A
Fixed Cost has to be decreased to Make the positive NPV

Example-

Sales	1000	1000
Variable cost	200	200
Fixed Cost	100	50
EBIt	700	750
Interest	100	100
Tax	50	50
PAT	550	600
Depreciation tax sheild	50	50
CFAT	600	650

Fixed cost Decrease CFAT is increase, if cashflow is increase there should be increase in the pv of cashinflow
NPV = Pv of cashinflow - outflow
Pv of cash inflow increase there should be positive value.

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