Exam 9: Risk Analysis, Real Options, AMCQ Capital Budgeting

The Tall Stack expects to sell 3,000 units,±10 percent.The expected variable cost per unit is $7,±3 percent,and the expected fixed costs are $13,700,±1 percent.The depreciation expense is $6,870.The sale price is estimated at $16 a unit,±2 percent.The company is conducting a sensitivity analysis on the sales price using a sales price estimate of $15.What will be the earnings before interest and taxes?

Fixed production costs are

Arvin's is analyzing a project with an initial cost of $212,000 that would be depreciated straight-line to zero over the project's 3-year life.Estimates include fixed costs of $48,280,variable costs per unit of $13.12,and a selling price of $26.50 per unit.The discount rate is set at 16 percent with a tax rate of 35 percent.What is the financial breakeven point?

A project has estimated sales of 11,500 units,±2 percent.The expected variable cost per unit is $13,and the expected fixed costs are $29,000.The fixed and variable cost estimates are considered accurate within a range of ±3 percent.The sales price is estimated at $29 a unit,±1 percent.What is the contribution margin for a sensitivity analysis using a fixed cost of $30,000?

Which type of analysis is most dependent upon the use of a computer?

Assume a project has estimated fixed costs of $61,200,variable costs per unit of $84.29,a selling price of $199,and an initial cost of $402,000 for fixed assets.Depreciation is straight-line to zero over the project's 4-year life.The tax rate is 30 percent,and the discount rate is 12 percent.What is the financial breakeven point?

All else constant,as the variable cost per unit increases,the

Which one of the following statements is correct regarding the financial breakeven point of a project?

At a production level of 7,500 units,a project has earnings before interest and taxes of $48,310.Depreciation is $9,700,and fixed costs are $12,200.What is the variable cost per unit if the sales price per unit is $29.50?

The estimates for a project include a sales quantity of 22,300 units,±4 percent,variable costs per unit of $8,and fixed costs of $127,800.Cost estimates are considered accurate within a range of ±3 percent.The depreciation expense is $48,000.The sale price is estimated at $19 a unit,±6 percent.The company is conducting a sensitivity analysis on the sale price using a sale price estimate of $18.Using this value,what will be the earnings before interest and taxes?

Which one of these criticisms applies to net present value analysis?

Sensitivity analysis of a project is conducted by

As a project's degree of sensitivity to variable costs increases,the

Which one of these is a disadvantage of sensitivity analysis?

Rosita's is considering a project with a discount rate of 9 percent.If the firm starts the project today,it will incur an initial cost of $32,260 and will receive cash inflows of $18,320 a year for 4 years.If the firm waits 1 year to start the project,the initial cost will decrease to $30,500,the cash flows will increase to $18,640 a year for 4 years,and the discount rate will decrease to 8.5 percent.What is the value of the option to wait?

Which one of these would increase the value of a single-family housing development project if that development were delayed?

Which one of the following statements concerning variable costs is correct?

A project requires an initial investment of $69,000 for equipment that will be depreciated using the straight-line method to zero over the project's 4-year life.The equipment can be sold for $15,000 at the end of the project.The project requires $8,700 in net working capital.The company expects to sell 31,000 units,±5 percent.The expected variable cost per unit is $12,and the expected fixed costs are $46,000.The fixed and variable cost estimates are considered accurate within a range of ±2 percent.The sales price is estimated at $19 a unit,±2 percent.The discount rate is 14 percent,and the tax rate is 34 percent.What is the operating cash flow for a sensitivity analysis using total fixed costs of $45,000?

Mercier's is analyzing a proposed 4-year project with expected sales of 26,500 units,±3 percent.The expected variable cost per unit is $10,and the expected fixed costs are $42,000.The fixed and variable cost estimates are considered accurate within a range of ±2 percent.The sales price is estimated at $19 a unit,±2 percent.The project requires an initial investment of $74,000 for equipment that will be depreciated using the straight-line method to zero over the project's life.The equipment can be sold for $20,000 at the end of the project.The project requires $11,200 in net working capital.The discount rate is 14 percent,and the tax rate is 35 percent.What is the earnings before interest and taxes estimate under the expected case scenario?

The Meat Mart has computed its fixed costs to be $.38 per pound given an average daily sales level of 500 pounds.It charges $5.59 a pound for top-grade ground beef.The variable cost per pound is $2.64.The tax rate is 34 percent.The accounting profit breakeven point is 211.5 pounds per day.What is the amount of the depreciation expense?