A business analyst is studying the cost of the endeavor in relation to the projected income the endeavor will bring once the project is completed. What financial valuation technique can the business…

Question

Options

• APayback period
• BAverage rate of return
• CCost-benefit analysis
• DDiscounted cash flow

• A
  3% (2)
• B
  2% (1)
• C
  87% (53)
• D
  8% (5)

Explanation

The financial valuation technique that the business analyst can use to determine the breakeven point for the project is cost-benefit analysis. This is a technique for comparing the costs and benefits of different alternatives or solutions, and identifying the most optimal one12. Cost-benefit analysis helps to evaluate the feasibility and value of the project, and to estimate the return on investment (ROI). The breakeven point is the point where the total costs equal the total benefits, and the project starts to generate profit3. The other options are not financial valuation techniques that can determine the breakeven point for the project, but rather techniques for measuring the financial performance or attractiveness of the project, such as payback period (A), which is the time required for the project to recover its initial investment4, average rate of return (B), which is the ratio of the average annual profit to the initial investment, or discounted cash flow (D), which is the present value of the future cash flows of the project.

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