COST ACCOUNTING
CAPITAL BUDGETING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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The maximum level of cash inflow needed for the project to be acceptable.
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The Minimum level of cash inflow needed for the project to be acceptable.
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The maximum level of cash outflow needed for the project to be acceptable.
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The minimum level of cash Outflow needed for the project to be acceptable.
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Detailed explanation-1: -Question: Breakeven cash inflow refers to the minimum level of cash inflow necessary for a project to be acceptable, that is, IRR < cost of capital. the minimum level of cash inflow necessary for a project to be acceptable, that is, NPV > $0.
Detailed explanation-2: -Break Even Point is a versatile metric for understanding when your business will become profitable and at what point you have enough revenue to cover all of your expenses. Break Even Point is essentially the minimum revenue or volume of sales needed to cover all operating expenses.
Detailed explanation-3: -So in the denominator we have 1 plus the rate interest which is 0.08 and that elevated to the 4 in the numerator, we have the future value. That is 1250 point. So using our calculator remember that we need to answer with 2 decimal places, so that will be 918.79.
Detailed explanation-4: -Cash inflows include operating profits and cash shielded by tax savings and depreciation. Cash outflows include the principal and interest and possible tax repayments associated with the project.
Detailed explanation-5: -The calculation is operating income before depreciation minus taxes and adjusted for changes in the working capital. Operating Cash Flow (OCF) = Operating Income (revenue – cost of sales) + Depreciation – Taxes +/-Change in Working Capital.