In some cases, while NPV Breakeven point is calculated, npv of all cash inflows, outflows are taken to find the contribution and equated to all fixed costs except depreciation. The initial investment is ignored.
In another case, the equation used is
npv of (contribution – fixed costs) = initial investment
which is right and if both are correct, how do we choose which to use under what conditions.
This is really an MA question, but I will answer it here.
BEP is where PV of inflows and outflows match and NPV is therefore zero.
Outflow = O
PV of contribution = C
PV of fixed costs = F
So, BEP is when: C – O – F = 0
O = C – F [ your second equation]
C – O = F [ your first equation, except that when you say ‘npv of all cash inflows, outflow’ the outflows must be only the variable cost outflows..]
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