Exam 7: Risk Analysis, Real Options, and Capital Budgeting

A proposed project has fixed costs of $3,600,depreciation expense of $1,500,and a sales quantity of 1,300 units. What is the contribution margin if the projected level of sales is the accounting break-even point?

The Adept Co. is analyzing a proposed project. The company expects to sell 2,500 units,give or take 10%. The expected variable cost per unit is $8 and the expected fixed costs are $12,500. Cost estimates are considered accurate within a plus or minus 5% range. The depreciation expense is $4,000. The sale price is estimated at $16 a unit,give or take 2%. The company bases its sensitivity analysis on the expected case scenario What is the amount of the fixed cost per unit under the pessimistic case scenario?

What is the benefit of scenario analysis if it does not produce an accept or reject decision for a proposed project?

The potential decision to abandon a project has option value because:

The Can-Do Co. is analyzing a proposed project. The company expects to sell 12,000 units,give or take 4%. The expected variable cost per unit is $7 and the expected fixed cost is $36,000. The fixed and variable cost estimates are considered accurate within a plus or minus 6% range. The depreciation expense is $30,000. The tax rate is 34%. The sale price is estimated at $14 a unit,give or take 5%. The company bases its sensitivity analysis on the expected case scenario. What is the earnings before interest and taxes under the optimistic case scenario?

At stage 2 of the decision tree it shows that if a project is successful,the payoff will be $53,000 with a 2/3 chance of occurrence. There is also the 1/3 chance of a $-24,000 payoff. The cost of getting to stage 2 (1 year out) is $44,000. The cost of capital is 15%. What is the NPV of the project at stage 1?

Ralph and Emma's is considering a project with total sales of $17,500,total variable costs of $9,800,total fixed costs of $3,500,and estimated production of 400 units. The depreciation expense is $2,400 a year. What is the contribution margin per unit?

Fixed costs: I. are variable over long periods of time. II) must be paid even if production is halted. III) are generally affected by the amount of fixed assets owned by a firm. IV) per unit remain constant over a given range of production output.

The Meldrum Co. is analyzing a proposed project. The company expects to sell 3,000 units,give or take 15%. The expected variable cost per unit is $8 and the expected fixed costs are $12,500. Cost estimates are considered accurate within a plus or minus 5% range. The depreciation expense is $4,000. The sale price is estimated at $18 a unit,give or take 2%. The company bases its sensitivity analysis on the expected case scenario. What is the amount of the fixed cost per unit under the pessimistic case scenario?

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

Sensitivity analysis is conducted by:

Fixed costs:

The type of analysis that is most dependent upon the use of a computer is _____ analysis.

All else equal,the contribution margin must increase as:

Which of the following are hidden options in capital budgeting?

At a production level of 6,000 units a project has total costs of $120,000. The variable cost per unit is $14.50. What is the amount of the total fixed costs?

The Can-Do Co. is analyzing a proposed project. The company expects to sell 12,000 units,give or take 4%. The expected variable cost per unit is $7 and the expected fixed cost is $36,000. The fixed and variable cost estimates are considered accurate within a plus or minus 6% range. The depreciation expense is $30,000. The tax rate is 34%. The sale price is estimated at $14 a unit,give or take 5%. The company bases its sensitivity analysis on the expected case scenario. What is the operating cash flow for a sensitivity analysis using total fixed costs of $32,000?

All else constant,the accounting break-even level of sales will decrease when the:

The Adept Co. is analyzing a proposed project. The company expects to sell 2,500 units,give or take 10%. The expected variable cost per unit is $8 and the expected fixed costs are $12,500. Cost estimates are considered accurate within a plus or minus 5% range. The depreciation expense is $4,000. The sale price is estimated at $16 a unit,give or take 2%. The company bases its sensitivity analysis on the expected case scenario. The company conducts a sensitivity analysis using a variable cost of $9. The total variable cost estimate will be:

At a production level of 5,600 units a project has total costs of $89,000. The variable cost per unit is $11.20. What is the amount of the total fixed costs?