Discuss the Basic Difference Between an Accounting Break-Even Point Analysis

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The Answer is An accounting break-even analysis focuses on break-even in accounting terms, while the economic break-even adds in the opportunity cost of the investment. In other words, a break-even in accounting terms generally indicates a negative NPV for the project, until the opportunity cost of the initial investment can be recovered. Since financial managers must continually think of the opportunity costs of their projects, an economic break-even should be considered more reliable in selecting appropriate projects. It is likely the case, however, that accounting break-even is a more common exercise among managers. Although economic break-even should not be considered the most difficult of concepts, there are likely to be many management teams that confine their analysis to accounting terms.

Discuss the Basic Difference Between an Accounting Break-Even Point Analysis

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