Question 1

In scenario analysis,the expected case is

Accepted Answer

A) determined by a firm's current level of sales and costs. 
B) a firm's most optimistic outlook that is likely to occur. 
C) the situation where a project obtains its financial breakeven point. 
D) a firm's best guess of a future outcome. 
E) based on a firm's historical average sales and costs. 
A) determined by a firm's current level of sales and costs. 
B) a firm's most optimistic outlook that is likely to occur. 
C) the situation where a project obtains its financial breakeven point. 
D) a firm's best guess of a future outcome. 
E) based on a firm's historical average sales and costs.

Question 2

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?

Accepted Answer

A) 1,422 units 
B) 1,806 units 
C) 1,366 units 
D) 1,698 units 
E) 1,228 units 
A) 1,422 units 
B) 1,806 units 
C) 1,366 units 
D) 1,698 units 
E) 1,228 units

Question 3

Roy is analyzing a 5-year project with an initial cost of $210,000,a required return of 16 percent,and a probability of success of 62 percent.If the project fails,it will generate an annual after-tax cash flow of -$48,500.If the project succeeds,the annual after-tax cash flow will be $79,000.He has further determined that if the project fails,he will shut it down after the first year and lose all of his original investment.If,however,the project is a success,he can expand it with no additional investment and increase the after-tax cash flow to $154,000 a year for Years 2-5.At the end of Year 5,the project would be terminated and have no salvage value.What is the net present value of this project at Time 0?

Accepted Answer

A) $46,655.42 
B) $32,560.35 
C) $47,297.19 
D) $62,543.35 
E) $59,297.19 
A) $46,655.42 
B) $32,560.35 
C) $47,297.19 
D) $62,543.35 
E) $59,297.19

Question 4

Rita's Flowers is considering a 3-year project with a discount rate of 12 percent,a tax rate of 34 percent,and an initial cost of $12,000 for fixed assets.The selling price is estimated at $22 a unit based on variable costs per unit of $6.20 and fixed costs of $2,280.Depreciation is straight-line to zero over 3 years.What is the accounting breakeven point?

Accepted Answer

A) 262 units 
B) 301 units 
C) 492 units 
D) 397 units 
E) 406 units 
A) 262 units 
B) 301 units 
C) 492 units 
D) 397 units 
E) 406 units

Question 5

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

Accepted Answer

A) Variable costs minus fixed costs equal marginal costs. 
B) Variable costs are equal to zero when production is equal to zero. 
C) An increase in variable costs increases the operating cash flow. 
D) Variable costs minus fixed costs equals the contribution margin. 
E) Future variable costs are generally known with certainty. 
A) Variable costs minus fixed costs equal marginal costs. 
B) Variable costs are equal to zero when production is equal to zero. 
C) An increase in variable costs increases the operating cash flow. 
D) Variable costs minus fixed costs equals the contribution margin. 
E) Future variable costs are generally known with certainty.

Question 6

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?

Accepted Answer

A) 10,749 units 
B) 13,067 units 
C) 11,618 units 
D) 10,117 units 
E) 11,199 units 
A) 10,749 units 
B) 13,067 units 
C) 11,618 units 
D) 10,117 units 
E) 11,199 units

Question 7

Wilson's Antiques is considering a project that has an initial cost today of $14,000.The project has a life of 2 years with cash inflows of $9,500 a year.Should Wilson's decide to wait 2 years to commence this project,the initial cost will increase by 3 percent and the cash inflows will increase to $11,000 a year.What is the value of the option to wait if the applicable discount rate is 12 percent?

Accepted Answer

A) $1,269.26 
B) $1,335.54 
C) $2,115.08 
D) $1,606.76 
E) $1,935.54 
A) $1,269.26 
B) $1,335.54 
C) $2,115.08 
D) $1,606.76 
E) $1,935.54

Question 8

New Foods is analyzing a proposed project with expected sales of 8,700 units,±4 percent.The expected variable cost per unit is $26 and the expected fixed costs are $49,000.Cost estimates are considered accurate within a range of ±1 percent.The depreciation expense is $18,300.The sale price is estimated at $52 a unit,±3 percent.If the company conducts a sensitivity analysis using a variable cost of $28,what will be the total variable cost estimate?

Accepted Answer

A) $233,856 
B) $253,344 
C) $253,625 
D) $243,600 
E) $248,060 
A) $233,856 
B) $253,344 
C) $253,625 
D) $243,600 
E) $248,060

Question 9

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?

Accepted Answer

A) $178,000 
B) $204,000 
C) $136,000 
D) $248,000 
E) $154,000 
A) $178,000 
B) $204,000 
C) $136,000 
D) $248,000 
E) $154,000

Question 10

William's Co.is considering spending $29,000 at Time 0 to test a new product.Depending on the test results,the firm may decide to spend $64,000 at Time 1 to start production.If the product is introduced and it is successful,it will produce after-tax cash flows of $48,000 a year for Years 2 through 4.If it is unsuccessful,there will be no cash flow in Year 1,after which the project will be terminated.There are no recovery costs at the end of Year 4.The probability of a successful test and investment is 58 percent.What is the net present value at Time 0 given a discount rate of 16 percent?

Accepted Answer

A) $5,881.15 
B) $8,407.70 
C) -$7,098.65 
D) $1,133.15 
E) -$3,594.43 
A) $5,881.15 
B) $8,407.70 
C) -$7,098.65 
D) $1,133.15 
E) -$3,594.43

Question 11

Real options are options that

Accepted Answer

A) apply only to projects that are classified as high risk. 
B) apply only to projects involving vacant land. 
C) rarely are used in actual practice. 
D) describe actions that can be taken once a project has commenced. 
E) are guaranteed to increase a project's value if implemented within the first year of the project. 
A) apply only to projects that are classified as high risk. 
B) apply only to projects involving vacant land. 
C) rarely are used in actual practice. 
D) describe actions that can be taken once a project has commenced. 
E) are guaranteed to increase a project's value if implemented within the first year of the project.

Question 12

Financial breakeven analysis is superior to accounting profit breakeven analysis because it

Accepted Answer

A) is easier to compute. 
B) considers fixed costs while the accounting profit breakeven does not. 
C) uses straight-line depreciation rather than the MACRS method. 
D) considers the economic opportunity costs of the initial investment. 
E) considers the contribution margin while the accounting profit breakeven does not. 
A) is easier to compute. 
B) considers fixed costs while the accounting profit breakeven does not. 
C) uses straight-line depreciation rather than the MACRS method. 
D) considers the economic opportunity costs of the initial investment. 
E) considers the contribution margin while the accounting profit breakeven does not.

Question 13

Appalachian Crafts is analyzing a project with expected sales of 18,900 units,±2 percent.The expected variable cost per unit is $23 and the expected fixed costs are $52,000.Cost estimates are considered accurate within a range of ±1 percent.The depreciation expense is $18,400.The sale price is estimated at $54 a unit,±2 percent.What is the total dollar difference between the revenue using the optimistic sale price versus the expected sale price?

Accepted Answer

A) $24,600 
B) $16,800 
C) $20,412 
D) $17,894 
E) $22,200 
A) $24,600 
B) $16,800 
C) $20,412 
D) $17,894 
E) $22,200

Question 14

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

Accepted Answer

A) Net present value is too nearsighted. 
B) Net present value analysis cannot be integrated with sensitivity analysis. 
C) Real options cannot be included in net present value analysis. 
D) Managers may acquire a false sense of security based on a project's net present value. 
E) Net present value analysis cannot be integrated with scenario analysis. 
A) Net present value is too nearsighted. 
B) Net present value analysis cannot be integrated with sensitivity analysis. 
C) Real options cannot be included in net present value analysis. 
D) Managers may acquire a false sense of security based on a project's net present value. 
E) Net present value analysis cannot be integrated with scenario analysis.

Question 15

Assuming the selling price is greater than the total cost per unit,the contribution margin must increase as

Accepted Answer

A) both the sales price and variable cost per unit increase. 
B) the sales price per unit declines. 
C) the difference between the sales price and the fixed cost per unit increases. 
D) the gap between the sales price and the variable cost per unit widens. 
E) the fixed cost per unit declines. 
A) both the sales price and variable cost per unit increase. 
B) the sales price per unit declines. 
C) the difference between the sales price and the fixed cost per unit increases. 
D) the gap between the sales price and the variable cost per unit widens. 
E) the fixed cost per unit declines.

Question 16

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?

Accepted Answer

A) $266.67 
B) $433.93 
C) $384.01 
D) $128.09 
E) $233.33 
A) $266.67 
B) $433.93 
C) $384.01 
D) $128.09 
E) $233.33

Question 17

At a production level of 5,150 units,a project has total cash costs of $130,789.The variable cost per unit is $11.07,and the depreciation is $8,600.What is the amount of the total fixed costs?

Accepted Answer

A) $65,178.50 
B) $78,992.11 
C) $56,204.09 
D) $73,778.50 
E) $68,626.67 
A) $65,178.50 
B) $78,992.11 
C) $56,204.09 
D) $73,778.50 
E) $68,626.67

Question 18

A project has a contribution margin of $13.27,projected fixed costs of $78,900,projected variable cost per unit of $9,and a projected financial breakeven point of 16,230 units.The depreciation expense is $36,200,and the tax rate is 35 percent.What is the operating cash flow at this level of output?

Accepted Answer

A) $65,176.87 
B) $103,038.10 
C) $112,500.00 
D) $101,376.87 
E) $122,320.50 
A) $65,176.87 
B) $103,038.10 
C) $112,500.00 
D) $101,376.87 
E) $122,320.50

Question 19

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

Accepted Answer

A) Decrease in demand for housing 
B) Increase in unemployment 
C) Decrease in property taxes 
D) Increase in building costs 
E) Increase in insurance costs 
A) Decrease in demand for housing 
B) Increase in unemployment 
C) Decrease in property taxes 
D) Increase in building costs 
E) Increase in insurance costs

Question 20

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

Accepted Answer

A) net profit increases. 
B) contribution margin decreases. 
C) sensitivity to fixed costs decreases. 
D) operating cash flow increases. 
E) financial breakeven point decreases. 
A) net profit increases. 
B) contribution margin decreases. 
C) sensitivity to fixed costs decreases. 
D) operating cash flow increases. 
E) financial breakeven point decreases.

In scenario analysis,the expected case is

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

Real options are options that

Financial breakeven analysis is superior to accounting profit breakeven analysis because it

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

Assuming the selling price is greater than the total cost per unit,the contribution margin must increase as

At a production level of 5,150 units,a project has total cash costs of $130,789.The variable cost per unit is $11.07,and the depreciation is $8,600.What is the amount of the total fixed costs?

A project has a contribution margin of $13.27,projected fixed costs of $78,900,projected variable cost per unit of $9,and a projected financial breakeven point of 16,230 units.The depreciation expense is $36,200,and the tax rate is 35 percent.What is the operating cash flow at this level of output?

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

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

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

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

In scenario analysis,the expected case is

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

Real options are options that

Financial breakeven analysis is superior to accounting profit breakeven analysis because it

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

Assuming the selling price is greater than the total cost per unit,the contribution margin must increase as

At a production level of 5,150 units,a project has total cash costs of $130,789.The variable cost per unit is $11.07,and the depreciation is $8,600.What is the amount of the total fixed costs?

A project has a contribution margin of $13.27,projected fixed costs of $78,900,projected variable cost per unit of $9,and a projected financial breakeven point of 16,230 units.The depreciation expense is $36,200,and the tax rate is 35 percent.What is the operating cash flow at this level of output?

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

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

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