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

A project with a life of one year has an accounting break-even point of 2,962 units.The fixed costs are $46,308 and the depreciation expense is $22,147.The projected variable cost per unit is $23.10.What is the projected sales price?

The Can-Do Co.is analyzing a project with anticipated sales of 12,000 units,± 4 percent; variable costs per unit of $7,± 6 percent; and annual fixed costs of $36,000,± 6 percent.Annual depreciation is $29,600 and the tax rate is 21 percent.The sale price is $14.99 a unit,± 1 percent.What is the operating cash flow under the optimistic scenario?

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

All else constant,as the variable cost per unit for a project increases,the:

An analysis of what happens to the estimate of net present value when only one input variable is changed is called ________ analysis.

The sales level that results in a project's net present value exactly equaling zero is called the ________ break-even.

ABC Co.has compiled these estimates for a new 1-year project: Sales of 1,650 units,± 5 percent; sales price of $17 a unit,± 1 percent; variable costs per unit of $7.49,± 3 percent; fixed costs of $3,800,± 1 percent; and depreciation of $2,200.The company bases its sensitivity analysis on the expected case scenario.If the company conducts a sensitivity analysis at a sales price of $16.25,what will be the earnings before interest and taxes?

The accounting break-even production quantity for a project is 5,799 units.The fixed costs are $92,640,the depreciation is $36,210,and the sales price per unit is $48.29.What is the variable cost per unit?

A project has these estimated values: sales quantity of 4,600 units ± 2 percent; variable cost per unit of $17,± 3 percent; annual fixed costs of $46,900,± 1 percent; annual depreciation of $17,300; and a sales price of $39 a unit,± 10 percent.The company bases its sensitivity analysis on the expected scenario.What will be the operating cash flow for a sensitivity analysis based on a sales price of $35 a unit and a tax rate of 21 percent?

Northern Woods is considering two methods of production for a new product.The first method will require fixed assets costing $450,000 that will be depreciated straight-line to zero over the product's 3-year life.Annual fixed costs are $316,000 and variable costs per unit are $8.64.The second method will require fixed assets costing $790,000,annual fixed costs of $211,000,and variable costs per unit of $6.57.The firm expects to sell 46,000 units per year at $20 a unit.The discount rate is 16 percent and the tax rate is 21 percent.Should the product be produced and if so,which method of production should be implemented and why?

The sales level that results in a project's net income exactly equaling zero is called the ________ break-even.

The market value of an investment project should be viewed as the sum of the standard NPV and the value of the managerial options.Identify three common project options available to management,when each might be employed,and how each of those options would influence a project's value.

Brewster's is considering a project with a life of 5 years,an initial cost of $120,000,and a discount rate of 12 percent.The firm expects to sell 2,100 units a year at a cash flow per unit of $20.The firm will have the option to abandon this project after three years at which time it could sell the project for $50,000.At what level of sales should the firm be willing to abandon this project at the end of the third year?

Fixed costs:

The Quick-Start Company has the following pattern of potential cash flows for a new project. If the company has a discount rate of 16 percent,what is the Time 1 net present value?

Conducting scenario analysis helps managers see the:

Which one of the following statements is correct?

Variable costs:

Sensitivity analysis is conducted by:

The Quorum Company has a prospective 6-year project that requires initial fixed assets costing $962,000,annual fixed costs of $403,400,variable costs per unit of $123.60,a sales price per unit of $249,a discount rate of 14 percent,and a tax rate of 21 percent.What is the present value break-even point in units per year?