14. Break-even analysis (S10.2) A financial analyst has computed both accounting and NPV break-even sales levels for a project using straight-line depreciation over a six-year period.

The project manager wants to know what will happen to these estimates if the firm can write off the entire investment in the year that it is made. The firm is in a 21% tax bracket.

a. Would the accounting break-even level of sales in the first years of the project increase or decrease?

b. Would the NPV break-even level of sales in the first years of the project increase or decrease?

c. If you were advising the analyst, would the answer to part

(a) or

(b) be important to you?

Specifically, would you say that the switch to immediate expensing makes the project more or less attractive?