Banking · Term Loan Appraisal

A Term Loan appraisal involves long-term risk and relies on future projections. One key tool used is Break-Even Analysis, which provides the 'Safety Margin' for the project. Statement I: The Break-Even Point (BEP) is the level of operations where the project incurs no loss but also earns no profit, and all fixed and variable costs are covered. Statement II: A lower Break-Even Point (e.g., at 30 percent capacity) indicates a higher risk for the bank because the project needs to operate at high capacity to survive. Statement III: The Fixed Costs used in BEP calculation include interest on term loans, depreciation, and administrative salaries, which do not vary with the level of production. Considering the statements provided, which of the following is correct?