ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Break-Even Point

Satya Prakash Singh Jayant V Deshpande When net present value of investment/internal rate of return (NPVI/IRR) has been calculated for a project to measure its profitability in a comprehensive manner, why is it that break-even point (BEP) is also calculated in addition? The required calculations for profitability are made on the assumption of expected level of operations of the project, generally, called 'normal capacity utilisation. But entrepreneurs are seldom sure that normal capacity will be utilised in actual operations. Internal organisational and environmental uncertainties force entrepreneurs to ask: What if the project does not run at the assumed capacity level? Will the project be in a position to at least recover its costs? These risk-induced questions motivate the calculation of BEP. This paper emphasises that BEP is essentially a risk-measure.

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