Fc

A project that always just breaks even on a cash basis never pays back, has an NPV that is negative and equal to the initial outlay, and has an IRR of -100 percent.

IV. The financial break-even point

Financial break-even occurs when the NPV of the project is zero. The financial break-even point is thus:

P - v where OCF* is the level of OCF that results in a zero NPV. A project that breaks even on a financial basis has a discounted payback equal to its life, a zero NPV, and an IRR just equal to the required return.

Ross et al.: Fundamentals of Corporate Finance, Sixth Edition, Alternate Edition

IV. Capital Budgeting

11. Project Analysis and Evaluation

© The McGraw-Hill Companies, 2002

PART FOUR Capital Budgeting

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