Asked by Alison Vidas on May 04, 2024
Verified
A project that just breaks even on an accounting basis will not pay back.
Accounting Basis
The method used to record the financial transactions of a business (e.g., cash basis, accrual basis).
Pay Back
The period of time it takes for an investment to generate enough returns to recover the original investment cost.
- Assimilate the distinctions among cash, accounting, and financial break-even points.
- Identify the link between the analysis of break-even points and the time span for project paybacks.
Verified Answer
US
Until SleepMay 06, 2024
Final Answer :
False
Explanation :
Breaking even on an accounting basis means that the project's revenues are equal to its expenses, not considering the time value of money. This does not inherently mean it will not pay back; it simply means it is not generating profit beyond its costs within the accounting period considered. Payback period analysis, however, is concerned with the time it takes for the initial investment to be recovered through cash inflows, which can still occur in a break-even scenario.
Learning Objectives
- Assimilate the distinctions among cash, accounting, and financial break-even points.
- Identify the link between the analysis of break-even points and the time span for project paybacks.