Question 1

The procedure of allocating a fixed amount of funds for capital spending to each business unit is called:

Accepted Answer

A)  marginal spending. 
B)  capital preservation. 
C)  soft rationing. 
D)  hard rationing. 
E)  marginal rationing. 
A)  marginal spending. 
B)  capital preservation. 
C)  soft rationing. 
D)  hard rationing. 
E)  marginal rationing.

Question 2

As the degree of sensitivity of a project to a single variable rises, the:

Accepted Answer

A)  less important the variable is to the final outcome of the project. 
B)  less volatile the project's net present value is to that variable. 
C)  greater is the importance of accurately predicting the value of that variable. 
D)  greater is the sensitivity of the project to the other variable inputs. 
E)  less volatile is the project's outcome. 
A)  less important the variable is to the final outcome of the project. 
B)  less volatile the project's net present value is to that variable. 
C)  greater is the importance of accurately predicting the value of that variable. 
D)  greater is the sensitivity of the project to the other variable inputs. 
E)  less volatile is the project's outcome.

Question 3

Which one of the following will be used in the computation of the best-case analysis of a proposed project?

Accepted Answer

A)  Minimal number of units that are expected to be produced and sold 
B)  The lowest expected salvage value that can be obtained for a project's fixed assets 
C)  The most anticipated sales price per unit 
D)  The lowest variable cost per unit that can reasonably be expected 
E)  The highest level of fixed costs that is actually anticipated 
A)  Minimal number of units that are expected to be produced and sold 
B)  The lowest expected salvage value that can be obtained for a project's fixed assets 
C)  The most anticipated sales price per unit 
D)  The lowest variable cost per unit that can reasonably be expected 
E)  The highest level of fixed costs that is actually anticipated

Question 4

Precise Machinery is analyzing a proposed project. The company expects to sell 7,500 units, ±10 percent. The expected variable cost per unit is $314 and the expected fixed costs are $647,000. Cost estimates are considered accurate within a ±4 percent range. The depreciation expense is $187,000. The sales price is estimated at $849 per unit, give or take 2 percent. The tax rate is 21 percent. The company is conducting a sensitivity analysis on the sales price using a sales price estimate of $850. What is the operating cash flow based on this analysis?

Accepted Answer

A)  $2,703,940 
B)  $2,293,089 
C)  $1,986,675 
D)  $2,354,874 
E)  $2,284,837 
A)  $2,703,940 
B)  $2,293,089 
C)  $1,986,675 
D)  $2,354,874 
E)  $2,284,837

Question 5

Which of the following values will be equal to zero when a firm is operating at the accounting break-even level of output?

Accepted Answer

A)  IRR and OCF 
B)  Net income and contribution margin 
C)  IRR and net income 
D)  OCF and NPV 
E)  Net income and NPV 
A)  IRR and OCF 
B)  Net income and contribution margin 
C)  IRR and net income 
D)  OCF and NPV 
E)  Net income and NPV

Question 6

Assume a project has a discounted payback that equals the project's life. The project's sales quantity must be at which one of these break-even points?

Accepted Answer

A)  Accounting 
B)  Leveraged 
C)  Marginal 
D)  Cash 
E)  Financial 
A)  Accounting 
B)  Leveraged 
C)  Marginal 
D)  Cash 
E)  Financial

Question 7

The accounting break-even production quantity for a project is 18,311 units. The fixed costs are $148,400 and the contribution margin per unit is $13.10. The fixed assets required for the project will be depreciated on straight-line basis to zero over the project's 4-year life. What is the amount of fixed assets required for this project?

Accepted Answer

A)  $535,592 
B)  $365,896 
C)  $448,500 
D)  $332,400 
E)  $429,600 
A)  $535,592 
B)  $365,896 
C)  $448,500 
D)  $332,400 
E)  $429,600

Question 8

Precise Machinery is analyzing a proposed project that is expected to sell 1,450 units, ±3 percent. The expected variable cost per unit is $139 and the expected fixed costs are $123,000. Cost estimates are considered accurate within a ±1 percent range. The depreciation expense is $39,000. The sales price is estimated at $349 per unit, ±3 percent. What is the contribution margin per unit under the best-case scenario?

Accepted Answer

A)  $137.03 
B)  $194.33 
C)  $148.13 
D)  $187.42 
E)  $221.86 
A)  $137.03 
B)  $194.33 
C)  $148.13 
D)  $187.42 
E)  $221.86

Question 9

You are considering a project and are concerned about the reliability of the cash flow forecasts. To reduce any potentially harmful results from accepting this project, you should consider:

Accepted Answer

A)  lowering the degree of operating leverage. 
B)  lowering the contribution margin per unit. 
C)  increasing the initial cash outlay. 
D)  increasing the fixed costs per unit. 
E)  lowering the operating cash flow. 
A)  lowering the degree of operating leverage. 
B)  lowering the contribution margin per unit. 
C)  increasing the initial cash outlay. 
D)  increasing the fixed costs per unit. 
E)  lowering the operating cash flow.

Question 10

Which one of the following statements concerning scenario analysis is correct?

Accepted Answer

A)  The pessimistic case scenario determines the maximum loss, in current dollars, that a firm could possibly incur from a given project. 
B)  Scenario analysis defines the entire range of results that could be realized from a proposed investment project. 
C)  Scenario analysis determines which variable has the greatest impact on a project's final outcome. 
D)  Scenario analysis helps managers analyze various outcomes that are possible given reasonable ranges for each of the assumptions. 
E)  Management is guaranteed a positive outcome for a project when the worst-case scenario produces a positive NPV. 
A)  The pessimistic case scenario determines the maximum loss, in current dollars, that a firm could possibly incur from a given project. 
B)  Scenario analysis defines the entire range of results that could be realized from a proposed investment project. 
C)  Scenario analysis determines which variable has the greatest impact on a project's final outcome. 
D)  Scenario analysis helps managers analyze various outcomes that are possible given reasonable ranges for each of the assumptions. 
E)  Management is guaranteed a positive outcome for a project when the worst-case scenario produces a positive NPV.

Question 11

Which of the following variables will be forecast at their highest expected level under a best-case scenario?

Accepted Answer

A)  Fixed costs and units value 
B)  Variable costs and sales price 
C)  Fixed costs and sales price 
D)  Salvage value and units sold 
E)  Initial cost and variable costs 
A)  Fixed costs and units value 
B)  Variable costs and sales price 
C)  Fixed costs and sales price 
D)  Salvage value and units sold 
E)  Initial cost and variable costs

Question 12

A project that has a payback period exactly equal to the project's life is operating at:

Accepted Answer

A)  its maximum capacity. 
B)  the financial break-even point. 
C)  the cash break-even point. 
D)  the accounting break-even point. 
E)  a zero level of output. 
A)  its maximum capacity. 
B)  the financial break-even point. 
C)  the cash break-even point. 
D)  the accounting break-even point. 
E)  a zero level of output.

Question 13

The Metal Shop produces 1.7 million metal fasteners a year for industrial use. At this level of production, its total fixed costs are $486,000 and its total costs are $791,000. The firm can increase its production by 5 percent, without increasing either its total fixed costs or its variable costs per unit. A customer has made a one-time offer for an additional 50,000 units at a price per unit of $.165. Should the firm sell the additional units at the offered price? Why or why not?

Accepted Answer

A)  Yes; The offered price is less than the marginal cost. 
B)  Yes; The offered price is equal to the marginal cost. 
C)  No; The offered price is less than the marginal cost. 
D)  Yes; The offered price is greater than the marginal cost. 
E)  No; The offered price is greater than the marginal cost. 
A)  Yes; The offered price is less than the marginal cost. 
B)  Yes; The offered price is equal to the marginal cost. 
C)  No; The offered price is less than the marginal cost. 
D)  Yes; The offered price is greater than the marginal cost. 
E)  No; The offered price is greater than the marginal cost.

Question 14

Consider a 5-year project with an initial fixed asset investment of $324,000, straight-line depreciation to zero over the project's life, a zero salvage value, a selling price of $34, variable costs of $17, fixed costs of $189,700, a sales quantity of 94,000 units, and a tax rate of 21 percent. What is the sensitivity of OCF to changes in the sales price?

Accepted Answer

A)  $74,260 per $1 of sales 
B)  $61,600 per $1 of sales 
C)  $78,700 per $1 of sales 
D)  $59,470 per $1 of sales 
E)  $68,850 per $1 of sales 
A)  $74,260 per $1 of sales 
B)  $61,600 per $1 of sales 
C)  $78,700 per $1 of sales 
D)  $59,470 per $1 of sales 
E)  $68,850 per $1 of sales

Question 15

Which one of these is most associated with an IRR of negative 100 percent?

Accepted Answer

A)  Degree of operating leverage 
B)  Accounting break-even point 
C)  Contribution margin 
D)  Simulation analysis 
E)  Cash break-even point 
A)  Degree of operating leverage 
B)  Accounting break-even point 
C)  Contribution margin 
D)  Simulation analysis 
E)  Cash break-even point

Question 16

Stellar Plastics is analyzing a proposed project with annual depreciation of $28,750 and a tax rate of 23 percent. The company expects to sell 16,500 units, ±3 percent. The expected variable cost per unit is $1.87, ±1 percent, and the expected fixed costs are $24,900, ±1 percent. The sales price is estimated at $7.99 a unit, ±2 percent. What is the operating cash flow for a sensitivity analysis using total fixed costs of $26,000?

Accepted Answer

A)  $54,208 
B)  $64,347 
C)  $63,591 
D)  $62,408 
E)  $60,540 
A)  $54,208 
B)  $64,347 
C)  $63,591 
D)  $62,408 
E)  $60,540

Question 17

Which one of the following is the relationship between the percentage change in operating cash flow and the percentage change in quantity sold?

Accepted Answer

A)  Degree of sensitivity 
B)  Degree of operating leverage 
C)  Accounting break-even 
D)  Cash break-even 
E)  Contribution margin 
A)  Degree of sensitivity 
B)  Degree of operating leverage 
C)  Accounting break-even 
D)  Cash break-even 
E)  Contribution margin

Question 18

Scenario analysis is best suited to accomplishing which one of the following when analyzing a project?

Accepted Answer

A)  Determining how fixed costs affect NPV 
B)  Estimating the residual value of fixed assets 
C)  Identifying the potential range of reasonable outcomes 
D)  Determining the minimal level of sales required to break-even on an accounting basis 
E)  Determining the minimal level of sales required to break-even on a financial basis 
A)  Determining how fixed costs affect NPV 
B)  Estimating the residual value of fixed assets 
C)  Identifying the potential range of reasonable outcomes 
D)  Determining the minimal level of sales required to break-even on an accounting basis 
E)  Determining the minimal level of sales required to break-even on a financial basis

Question 19

Operating leverage is the degree of dependence a firm places on its:

Accepted Answer

A)  variable costs. 
B)  fixed costs. 
C)  sales. 
D)  operating cash flows. 
E)  depreciation tax shield. 
A)  variable costs. 
B)  fixed costs. 
C)  sales. 
D)  operating cash flows. 
E)  depreciation tax shield.

Question 20

Bell Weather Goods has several proposed independent projects that have positive NPVs. However, the firm cannot initiate any of the projects due to a lack of financing. This situation is referred to as:

Accepted Answer

A)  financial rejection. 
B)  project rejection. 
C)  soft rationing. 
D)  marginal rationing. 
E)  capital rationing. 
A)  financial rejection. 
B)  project rejection. 
C)  soft rationing. 
D)  marginal rationing. 
E)  capital rationing.

Exam 11: Project Analysis and Evaluation

The procedure of allocating a fixed amount of funds for capital spending to each business unit is called:

As the degree of sensitivity of a project to a single variable rises, the:

Which one of the following will be used in the computation of the best-case analysis of a proposed project?

Which of the following values will be equal to zero when a firm is operating at the accounting break-even level of output?

Assume a project has a discounted payback that equals the project's life. The project's sales quantity must be at which one of these break-even points?

You are considering a project and are concerned about the reliability of the cash flow forecasts. To reduce any potentially harmful results from accepting this project, you should consider:

Which one of the following statements concerning scenario analysis is correct?

Which of the following variables will be forecast at their highest expected level under a best-case scenario?

A project that has a payback period exactly equal to the project's life is operating at:

Which one of these is most associated with an IRR of negative 100 percent?

Which one of the following is the relationship between the percentage change in operating cash flow and the percentage change in quantity sold?

Scenario analysis is best suited to accomplishing which one of the following when analyzing a project?

Operating leverage is the degree of dependence a firm places on its:

Bell Weather Goods has several proposed independent projects that have positive NPVs. However, the firm cannot initiate any of the projects due to a lack of financing. This situation is referred to as:

Introduction to Corporate Finance

Financial Statements, Taxes, and Cash Flow

Working with Financial Statements

Long-Term Financial Planning and Growth

Introduction to Valuation: The Time Value of Money

Discounted Cash Flow Valuation

Interest Rates and Bond Valuation

Stock Valuation

Net Present Value and Other Investment Criteria

Making Capital Investment Decisions

Some Lessons from Capital Market History

Return, Risk, and the Security Market Line

Cost of Capital

Raising Capital

Financial Leverage and Capital Structure Policy

Dividends and Payout Policy

Short Term Finance and Planning

Cash and Liquidity Management

Credit and Inventory Management

International Corporate Finance

Behavioral Finance: Implications for Financial Management

Enterprise Risk Management

Options and Corporate Finance

Option Valuation

Mergers and Acquisitions

Leasing

Filters