Question

A company planning to market a new model of motor scooter analyzes the effect of changes in the selling price of the motor scooter, the number of units that will be sold, the cost of making the motor scooter, the effect on Net Working Capital, and the cost of capital for the project. They predict that the break-even point for sales price for the motor scooter is $2,480. What does this mean

Answer 1

Answer:

A. If the motor scooter is sold for $2.480, then the net present value (NPV) for the product will be zero.

Explanation:

As we know that

The break even point is the point at which the firm has no profit earned and no loss suffered

While the Net present value is the value that determines whether the projects should be accepted or not after considering the discounted rate.

That means if the initial investment is less than the present value than the project is accepted otherwise rejected

Moreover, the break even point is the point where the net present value is zero

Therefore, the first option is correct