Chapter 11, Problem 16QP

a)

Summary Introduction

To determine: The internal rate of return (IRR) of the project, payback period, and net present value of the project based on the accounting break even level of output.

Introduction:

Internal rate of return (IRR) is a projected rate of return for a particular project based on the given incremental cash flows of the project. This method considers all the cash flows of the particular project and adjusts the time value of money like the net present value.

Payback period refers to the number of periods it will take to recover the initial investments.

Net present value (NPV) refers to the discounted value of the future cash flows at present. The company should accept the project even if the net present value is positive or greater than zero. If there are two mutually exclusive projects, then the company has to select the project that has a higher net present value.

Accounting breakeven is a sales point at which, there is no profit or loss. It is the most widely used measure of the breakeven point.

b)

Summary Introduction

To determine: The internal rate of return (IRR) of the project, payback period, and net present value of the project based on the cash breakeven level of output

Introduction:

Cash breakeven specifies a sales level which can result in a zero operating cash flow.

c)

Summary Introduction

To determine: The internal rate of return (IRR) of the project, payback period, and net present value of the project based on the financial breakeven level of output.

Introduction:

Financial breakeven is a point that occurs at the time when a particular project breaks even on a financial basis. This means that the net present value is zero.