Question 1

The point where a project produces a rate of return equal to the required rate of return is known as the

Accepted Answer

A) external breakeven point. 
B) accounting profit breakeven point. 
C) internal breakeven point. 
D) financial breakeven point. 
E) contribution margin breakeven point. 
A) external breakeven point. 
B) accounting profit breakeven point. 
C) internal breakeven point. 
D) financial breakeven point. 
E) contribution margin breakeven point.

Question 2

In financial breakeven,the EAC is used to

Accepted Answer

A) allocate depreciation over the life of a project. 
B) determine the tax benefit of depreciation. 
C) allocate the initial investment over the life of a project. 
D) determine the ideal contribution margin. 
E) ascertain the appropriate discount rate. 
A) allocate depreciation over the life of a project. 
B) determine the tax benefit of depreciation. 
C) allocate the initial investment over the life of a project. 
D) determine the ideal contribution margin. 
E) ascertain the appropriate discount rate.

Question 3

Which one of these is a disadvantage of sensitivity analysis?

Accepted Answer

A) Sensitivity analysis may decrease the false sense of security among managers. 
B) Sensitivity analysis fails to identify the key variable that affects a project's net present value. 
C) Each variable in sensitivity analysis is treated in isolation. 
D) A sophisticated computer program is required to conduct sensitivity analysis. 
E) Sensitivity analysis assumes most variables will achieve their most optimistic value. 
A) Sensitivity analysis may decrease the false sense of security among managers. 
B) Sensitivity analysis fails to identify the key variable that affects a project's net present value. 
C) Each variable in sensitivity analysis is treated in isolation. 
D) A sophisticated computer program is required to conduct sensitivity analysis. 
E) Sensitivity analysis assumes most variables will achieve their most optimistic value.

Question 4

Mosler Company is considering a project requiring an initial investment of $229,700,fixed costs of $71,900,variable costs of $5.07 per unit,a selling price of $13.07 per unit,and a life of 4 years.The discount rate is 14 percent,and the tax rate is 30 percent.Depreciation is straight-line to zero over the project's life.What is the accounting breakeven point?

Accepted Answer

A) 15,008 units 
B) 13,200 units 
C) 16,166 units 
D) 11,302 units 
E) 17,352 units 
A) 15,008 units 
B) 13,200 units 
C) 16,166 units 
D) 11,302 units 
E) 17,352 units

Question 5

The project defined by the following decision tree has a required discount rate of 17 percent.
 
What is the Time 0 net present value of a successful test and investment?

Accepted Answer

A) $21,565,903 
B) $26,997,143 
C) $32,288,788 
D) $16,997,143 
E) $42,997,143 
A) $21,565,903 
B) $26,997,143 
C) $32,288,788 
D) $16,997,143 
E) $42,997,143

Question 6

The investment timing decision relates to

Accepted Answer

A) how long the cash flows last once a project is implemented. 
B) how frequently the cash flows of a project occur. 
C) how frequently the interest on the debt incurred to finance a project is compounded. 
D) the decision as to when a project should be started. 
E) the decision to either finance a project over time or pay out the initial cost in cash. 
A) how long the cash flows last once a project is implemented. 
B) how frequently the cash flows of a project occur. 
C) how frequently the interest on the debt incurred to finance a project is compounded. 
D) the decision as to when a project should be started. 
E) the decision to either finance a project over time or pay out the initial cost in cash.

Question 7

In scenario analysis,which one of the following items is least apt to be assigned a range of values?

Accepted Answer

A) Sales price per unit 
B) Variable cost per unit 
C) Fixed cost 
D) Initial cost 
E) Sales quantity 
A) Sales price per unit 
B) Variable cost per unit 
C) Fixed cost 
D) Initial cost 
E) Sales quantity

Question 8

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?

Accepted Answer

A) $21.43 
B) $24.07 
C) $17.76 
D) $18.92 
E) $20.14 
A) $21.43 
B) $24.07 
C) $17.76 
D) $18.92 
E) $20.14

Question 9

Rizzo's is considering a project with a life of 5 years and an initial cost of $131,000.The discount rate for the project is 14 percent.The firm expects to sell 2,100 units a year.The cash flow per unit is $23.The firm will have the option to abandon this project after 3 years at which time it expects it could sell the project for $49,000.At what level of sales should the firm be willing to abandon this project?

Accepted Answer

A) 1,087 units 
B) 1,294 units 
C) 1,479 units 
D) 1,619 units 
E) 1,502 units 
A) 1,087 units 
B) 1,294 units 
C) 1,479 units 
D) 1,619 units 
E) 1,502 units

Question 10

Kurt's Coffees has a new hot drink in mind that is expected to generate sales of 24,000 units over its 2-year life.The initial cost for equipment is $69,500.This equipment will be depreciated straight-line to zero over 2 years and have no salvage value.The fixed costs are $17,800,and the contribution margin is $2.20.The tax rate is 35 percent,and the discount rate is 14 percent.Should this new drink be pursued? Why or why not?

Accepted Answer

A) Yes; because the financial breakeven quantity of 19,014 units is less than expected sales 
B) Yes; because the financial breakeven quantity of 18,648 units is less than expected sales 
C) Yes; because the financial breakeven quantity of 29,101 units exceeds the expected sales 
D) No; because the financial breakeven quantity of 19,014 units is less than expected sales 
E) No; because the financial breakeven quantity of 29,101 units exceeds the expected sales 
A) Yes; because the financial breakeven quantity of 19,014 units is less than expected sales 
B) Yes; because the financial breakeven quantity of 18,648 units is less than expected sales 
C) Yes; because the financial breakeven quantity of 29,101 units exceeds the expected sales 
D) No; because the financial breakeven quantity of 19,014 units is less than expected sales 
E) No; because the financial breakeven quantity of 29,101 units exceeds the expected sales

Question 11

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?

Accepted Answer

A) $50,500 
B) $46,000 
C) $52,500 
D) $47,200 
E) $48,500 
A) $50,500 
B) $46,000 
C) $52,500 
D) $47,200 
E) $48,500

Question 12

Recently,DB Miller & Co.implemented a positive NPV project.The project has a projected life of 4 years and an estimated rate of return of 14 percent.The project can be expanded by simply incurring additional variable costs or shut down without incurring any penalties or additional costs.Today,the government ruled that projects of this type are now subject to a new per unit tax,the total cost of which will exceed the projected NPV.The most logical move for the company would be to

Accepted Answer

A) continue the project as planned since the NPV was positive and the project has been implemented. 
B) suspend the project until the following year to allow the company time to absorb the additional cost. 
C) double the size of the project as soon as it is feasible to do so. 
D) end the project immediately unless the additional tax can be passed on to Miller & Co.customers. 
E) decrease the required return on the project so the NPV can remain positive given the additional cost. 
A) continue the project as planned since the NPV was positive and the project has been implemented. 
B) suspend the project until the following year to allow the company time to absorb the additional cost. 
C) double the size of the project as soon as it is feasible to do so. 
D) end the project immediately unless the additional tax can be passed on to Miller & Co.customers. 
E) decrease the required return on the project so the NPV can remain positive given the additional cost.

Question 13

Nu-Tek is analyzing a proposed project with expected sales of 5,800 units,±6 percent.The expected variable cost per unit is $11 and the expected fixed costs are $15,600.Cost estimates are considered accurate within a range of ±4 percent.The depreciation expense is $5,700.The sale price is estimated at $21 a unit,±1 percent.What is the sales revenue under the pessimistic case scenario?

Accepted Answer

A) $120,582.00 
B) $116,120.21 
C) $113,347.08 
D) $108,110.00 
E) $114,492.00 
A) $120,582.00 
B) $116,120.21 
C) $113,347.08 
D) $108,110.00 
E) $114,492.00

Question 14

Les is concerned that his variable cost per unit projection for a project may not be reliable.Which type of analysis will best help him determine the effect that an incorrect variable cost estimate could have on the final outcome of the project?

Accepted Answer

A) Net income breakeven analysis 
B) Financial breakeven analysis 
C) Sensitivity analysis 
D) Contribution margin analysis 
E) Scenario analysis 
A) Net income breakeven analysis 
B) Financial breakeven analysis 
C) Sensitivity analysis 
D) Contribution margin analysis 
E) Scenario analysis

Question 15

Which term is used to represent the sales level that results in a project's net income exactly equalling zero?

Accepted Answer

A) Operational breakeven 
B) Financial breakeven 
C) Accounting profit breakeven 
D) Cash breakeven 
E) Present value breakeven 
A) Operational breakeven 
B) Financial breakeven 
C) Accounting profit breakeven 
D) Cash breakeven 
E) Present value breakeven

Question 16

Conducting scenario analysis helps managers see the

Accepted Answer

A) impact an individual variable has on the outcome of a project. 
B) possible range of market prices for a firm's stock over the life of a project. 
C) potential changes in long-term debt over the course of a proposed project. 
D) potential range of outcomes from a proposed project. 
E) distribution of funds to various independent capital projects. 
A) impact an individual variable has on the outcome of a project. 
B) possible range of market prices for a firm's stock over the life of a project. 
C) potential changes in long-term debt over the course of a proposed project. 
D) potential range of outcomes from a proposed project. 
E) distribution of funds to various independent capital projects.

Question 17

DK Markets expects a new project to produce sales of 9,600 units,±8 percent.The expected variable cost per unit is $17 and the expected fixed costs are $47,000.Cost estimates are considered accurate within a range of ±3 percent.The depreciation expense is $24,600.The sale price is estimated at $39 a unit,±2 percent.What is the amount of the fixed cost per unit under the pessimistic case scenario?

Accepted Answer

A) $5.16 
B) $4.40 
C) $3.19 
D) $4.02 
E) $5.48 
A) $5.16 
B) $4.40 
C) $3.19 
D) $4.02 
E) $5.48

Question 18

A project has an accounting breakeven point of 3,800 units.The fixed costs are $3,208,and the projected variable cost per unit is $16.42.The project requires an initial investment in fixed assets of $840 that will be depreciated straight-line to zero over the 4-year life of the project.What is the projected sales price given a zero tax rate?

Accepted Answer

A) $14.67 
B) $21.08 
C) $16.82 
D) $20.08 
E) $17.32 
A) $14.67 
B) $21.08 
C) $16.82 
D) $20.08 
E) $17.32

Question 19

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?

Accepted Answer

A) $13 
B) $14 
C) $15 
D) $16 
E) $17 
A) $13 
B) $14 
C) $15 
D) $16 
E) $17

Question 20

Which real options have the ability to increase a project's NPV if they are included in project analysis?

Accepted Answer

A) Options to wait and to abandon 
B) Options to expand and to wait 
C) Options to abandon and to expand 
D) Options to wait,abandon,and expand 
E) Real options do not affect a project's NPV 
A) Options to wait and to abandon 
B) Options to expand and to wait 
C) Options to abandon and to expand 
D) Options to wait,abandon,and expand 
E) Real options do not affect a project's NPV

The point where a project produces a rate of return equal to the required rate of return is known as the

In financial breakeven,the EAC is used to

Which one of these is a disadvantage of sensitivity analysis?

The project defined by the following decision tree has a required discount rate of 17 percent. What is the Time 0 net present value of a successful test and investment?

The investment timing decision relates to

In scenario analysis,which one of the following items is least apt to be assigned a range of values?

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?

Les is concerned that his variable cost per unit projection for a project may not be reliable.Which type of analysis will best help him determine the effect that an incorrect variable cost estimate could have on the final outcome of the project?

Which term is used to represent the sales level that results in a project's net income exactly equalling zero?

Conducting scenario analysis helps managers see the

Which real options have the ability to increase a project's NPV if they are included in project analysis?

Introduction to Corporate Finance

Financial Statements and Cash Flow

Financial Statements Analysis and Financial Models

Discounted Cash Flow Valuation

Interest Rates and Bond Valuation

Stock Valuation

Net Present Value and Other Investment Rules

Making Capital Investment Decisions

Risk and Return: Lessons From Market History

Return and Risk: The Capital Asset Pricing Model Capm

Risk, Cost of Capital, and Valuation

Efficient Capital Markets and Behavioral Challenges

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Dividends and Other Payouts

Options and Corporate Finance

Short-Term Finance and Planning

Raising Capital

International Corporate Finance

Mergers and Acquisitions Web Only

Filters

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

The point where a project produces a rate of return equal to the required rate of return is known as the

In financial breakeven,the EAC is used to

Which one of these is a disadvantage of sensitivity analysis?

The project defined by the following decision tree has a required discount rate of 17 percent. What is the Time 0 net present value of a successful test and investment?

The investment timing decision relates to

In scenario analysis,which one of the following items is least apt to be assigned a range of values?

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?

Les is concerned that his variable cost per unit projection for a project may not be reliable.Which type of analysis will best help him determine the effect that an incorrect variable cost estimate could have on the final outcome of the project?

Which term is used to represent the sales level that results in a project's net income exactly equalling zero?

Conducting scenario analysis helps managers see the

Which real options have the ability to increase a project's NPV if they are included in project analysis?

Introduction to Corporate Finance

Financial Statements and Cash Flow

Financial Statements Analysis and Financial Models

Discounted Cash Flow Valuation

Interest Rates and Bond Valuation

Stock Valuation

Net Present Value and Other Investment Rules

Making Capital Investment Decisions

Risk and Return: Lessons From Market History

Return and Risk: The Capital Asset Pricing Model Capm

Risk, Cost of Capital, and Valuation

Efficient Capital Markets and Behavioral Challenges

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Dividends and Other Payouts

Options and Corporate Finance

Short-Term Finance and Planning

Raising Capital

International Corporate Finance

Mergers and Acquisitions Web Only

Filters