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Assume a firm is considering a new project that requires an initial investment and has equal...

Assume a firm is considering a new project that requires an initial investment and has equal sales and costs over its life. Will the project reach the accounting, cash, or financial break-even point first? Which will it reach next? Last? Will this ordering always apply? Describe using an example

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Answer #1

the project will reach the cash break-even first then the accounting break-even next and the financial break even at the last.

For a project that has initial investment at the beginning and then it has cash inflows after the initial investment has been made, first it will reach the cash break even, then it will reach the accounting break even, and then it will reach the financial break even.

the cash break even is achieved first because depreciation is not included in cash break even.

depreciation is included in accounting break even so it is achieved after cash break even, and time value of money is also factored into the financial break even so it is achieved at the last.

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