Question 1

The financial breakeven point determines which one of these values?

Accepted Answer

A) Total sales 
B) Sales price 
C) Variable cost per unit 
D) Fixed costs 
E) Sales quantity

Question 2

The accounting breakeven production quantity for a project is 7,209 units.The fixed costs are $34,780,and the contribution margin is $11.Assume a zero tax rate.What is the projected depreciation expense?

Accepted Answer

A) $43,600 
B) $45,050 
C) $44,519 
D) $47,053 
E) $47,143

Question 3

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

Question 4

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

Question 5

Denver Mart is considering a project with a life of 5 years and an initial cost of $136,000.The discount rate is 11 percent.The firm expects to sell 2,200 units a year with a cash flow per unit of $26.The firm will have the option to abandon this project after 3 years at which time it expects it could sell the project for $48,000.The firm is interested in knowing how the project will perform if the sales forecast for Years 4 and 5 of the project are revised such that there is a probability of 50 percent that the sales will be 1,000 units and a probability of 50 percent they will be 2,500 units a year.What is the net present value of this project given your sales forecasts?

Accepted Answer

A) $23,617 
B) -$43,719 
C) $55,002 
D) $6,877 
E) $62,025

Question 6

Which one of these occurs at the financial breakeven point?

Accepted Answer

A) Fixed costs equal variable costs 
B) EBIT equals zero 
C) Net income equals zero 
D) Net present value equals zero 
E) IRR equals zero

Question 7

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

Question 8

A project has earnings before interest and taxes of $7,318,fixed costs of $13,480,a selling price of $14 a unit,and a sales quantity of 7,500 units.Depreciation is $2,200.What is the variable cost per unit?

Accepted Answer

A) $10.56 
B) $12.08 
C) $8.87 
D) $10.93 
E) $11.24

Question 9

A proposed project has fixed costs of $159,800,depreciation expense of $47,920,and a sales quantity of 6,750 units.Ignore taxes.What is the contribution margin if the projected level of sales is the accounting breakeven point?

Accepted Answer

A) $33.29 
B) $30.77 
C) $27.18 
D) $34.36 
E) $32.00

Question 10

The option to wait: I.may have minimal value if a project relates to a rapidly changing technology.
II)is partially dependent upon the discount rate applied to the project being evaluated.
III)could have a negative value.
IV)is valued based on a project's EAC.

Accepted Answer

A) I and III only 
B) II and IV only 
C) I and II only 
D) II,III,and IV only 
E) I,II,and III only

Question 11

Monte Carlo simulation is based on assigning a ________ and analyzing the results.

Accepted Answer

A) single value to each of a project's variables 
B) wide range of values to multiple variables simultaneously 
C) wide range of values to a single variable 
D) narrow range of values to two variables simultaneously 
E) narrow range of values to a single variable

Question 12

Last month,you introduced a new product to the market.Consumer demand has been overwhelming,and it appears that strong demand will exist over the long-term.Given this situation,management should consider the option to

Accepted Answer

A) suspend. 
B) contract. 
C) withdraw. 
D) abandon. 
E) expand.

Question 13

The Short Stack expects to sell 8,000 units,±2 percent.The expected variable cost per unit is $8,±3 percent,and the expected fixed costs are $20,000,±1 percent.The depreciation expense is $6,000.The sale price is estimated at $23 a unit,±2 percent.What is the sales revenue under the optimistic case scenario?

Accepted Answer

A) $187,680.00 
B) $83,760.33 
C) $88,000.61 
D) $197,335.20 
E) $191,433.60

Question 14

ELK,Inc.has compiled this information for a proposed project: sales price = $89 ±3 percent;fixed costs = $21,800 ±1 percent;variable cost per unit = $42.90 ±3 percent;sales quantity = 1,500 units ±5 percent;tax rate = 34 percent;initial investment in fixed assets = $36,500;depreciation method = straight-line to a zero book value over the project's life;project life = 4 years;salvage value of fixed assets = $0;net working capital requirement = $4,800,which will be recouped at the end of the project;discount rate = 12 percent.What is the project's net present value for the pessimistic scenario?

Accepted Answer

A) $40,661.08 
B) $47,422.30 
C) $45,899.21 
D) $44,371.15 
E) $52,222.12

Question 15

Sensitivity analysis helps determine the

Accepted Answer

A) range of possible outcomes given possible ranges for each variable. 
B) degree to which the net present value reacts to changes in a single variable. 
C) net present value given the best and the worst possible situations. 
D) degree to which a firm is reliant upon multiple economic factors changing simultaneously. 
E) ideal level of variable costs in relation to the fixed costs of a project.

Question 16

To determine the lowest net present value that is likely to occur given a range of values for all of the relevant variables,a firm should conduct which type of analysis?

Accepted Answer

A) Sensitivity 
B) Scenario 
C) Present value breakeven 
D) Financial breakeven 
E) Cash flow breakeven

Question 17

To set up a decision tree,you should

Accepted Answer

A) assign the most optimistic values to a success and the most pessimistic values to a failure. 
B) determine the cash flows that are most apt to occur given a set of circumstances. 
C) assign a constant discount rate to all decisions within the tree. 
D) ignore a project's initial cost. 
E) use equal probabilities for success and failure.

Question 18

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

Question 19

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.

Question 20

If a project breaks even on an accounting profit basis,then

Accepted Answer

A) the project's net present value will be zero. 
B) its sales quantity will be higher than if the project were to break even on a financial basis. 
C) the project's net present value will be negative. 
D) it will also break even on a financial basis. 
E) its contribution margin must be zero.

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