Valerie Just Completed Analyzing a Project

question 22

Multiple Choice

Valerie just completed analyzing a project. Her analysis indicates that the project will have a six-year life and require an initial cash outlay of $120,000. Annual sales are estimated at $189,000 and the tax rate is 21 percent. The net present value is negative $120,000. 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.

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Definitions:

Marginal Tax Rate

The rate at which the last dollar of a taxpayer’s income is taxed, indicating the percentage of tax applied to their income for each tax bracket in which they qualify.

Pre-Tax Salvage

The value of an asset before taxes that can be obtained at the end of its useful life or at the time of its disposal.

Maintenance Cost

refers to the expenses involved in keeping an asset, property, or equipment in its original or functional condition.

Net Cash Flow

The difference between a company's cash inflows and outflows within a specific period.