The application of a Break-Even Revenue concept in the preliminary assessment of investments generating time-limited free cash flows
The application of a Break-Even Revenue concept in the preliminary assessment of investments generating time-limited free cash flows

Summary/Abstract: In spite of the fact that capital budgeting methods are widely discussed in financial literature, there are still difficulties with the theory implementation in practice. The reasons for this situation are easy to identify. In case of the methods of preliminary analysis (eg. payback period, break-even point) very far-reaching simplifications are indicated. On the other hand, the use of more advanced methods (e.g., NPV, EVA) requires expertise in free cash flows and discount rates forecasting, skills which are not very common among managers responsible for investment decisions. The article presents a method developed by the authors which combines different tools. The created method gives easy to interpret information about the value of sales which guarantees NPV equals 0 in a given period of analysis.

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