break-even point


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Related to break-even point: fixed costs, Break-even analysis

Break-even point

Refers to the price at which a transaction produces neither a gain nor a loss. In the context of options, the term has the additional definitions:
1. Long calls and short uncovered calls: strike price plus premium.
2. Long puts and short uncovered puts: strike price minus premium.
3. Short covered call: purchase price of underlying stock minus premium.
4. Short put covered by short stock: short sale price of underlying stock plus premium.

Break-Even Point

1. The sales or revenues necessary to cover costs and prevent a firm from operating at a loss. The breakeven may be relatively stable or it may fluctuate, depending on the company or industry. Companies with high breakevens tend to have large fluctuations in earnings from year to year.

2. The price of a security that, if one sells at it, will cause the investor to neither make a profit nor lose money on the sale.

3. In options, the price of the underlying asset that will ensure that the option holder will neither make a profit nor lose money on exercising the option. In calls, the break-even point is the strike price added to the premium, while in puts, it is the strike price minus the premium.

break-even point

In any project,the point at which revenue will be sufficient to pay all required expenses and debt service. Most industries have generally recognized rules of thumb for the appropriate break-even point. For apartments, it might be 80 percent occupancy, for self-storage it might be 55 percent occupancy,and for business center space it might be 75 percent occupancy.Most construction lenders require that a project at least reach the break-even point before construction lending can be converted to fixed-rate and lower-rate permanent financing.If preparing a pro forma for a project and your break-even point is dramatically different from the rule of thumb for your industry,it may be time to check your assumptions or your math.

References in periodicals archive ?
Break-even point analysis method in building thermo-isolation decisions
This changes the above break-even point dramatically, and by much more than 50 percent.
Since their adjustments exceed the AMT break-even point, they would be subject to the AMT.
Break-even point in dollars = $650,000/0.8 or $812,500.
If that is the case, the new break-even point is 55 participants ($165,000/($7,000 - $4,000).
(3) However, this break-even point can be significantly lower in states that recognize S corporations if at least part of taxable income qualifies as long-term capital gain.
The CEO expressed hope that the bank will increase the profit on a monthly basis after reaching the break-even point.
In addition, the break-even point of a bull call is 95 points less than the break-even point of a long call.
An official for DaimlerChrysler Aerospace (Dasa), one of the Airbus Industrie consortium members, has apparently told a German radio station that the consortium was very confident of breaking even with the 555-seat aircraft and that 'the break-even point for this aircraft is significantly below the number analysts have said.' The project is expected to require about USD12bn investment from the partners in the European aircraft manufacturing consortium and their respective governments.
Figure 2 also indicates a foundry's production costs, overhead costs, required return, net profits less required return, and taxes when the production time is below the cost break-even point. If the production time is greater than the cost break-even production time, the product costs exceed the revenues and a loss is incurred .
That is, the break-even point will be exactly the same whether refinancing costs are paid out of pocket, or financed by increasing the new loan by an amount exactly sufficient to cover these costs.
After each break-even point is calculated, a graph of the percent amortizable and average amortizable life for each point is generated for each probability factor, yielding five separate curves.