Question 1

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?

Accepted Answer

A) $48.07 
B) $42.96 
C) $41.20 
D) $46.21 
E) $45.40

Question 2

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?

Accepted Answer

A) $63,876 
B) $54,309 
C) $56,208 
D) $59,311 
E) $64,499

Question 3

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

Accepted Answer

A) fixed costs increase. 
B) depreciation expense decreases. 
C) contribution margin decreases. 
D) variable costs per unit increase. 
E) selling price per unit decreases.

Question 4

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

Accepted Answer

A) contribution margin decreases. 
B) sensitivity to fixed costs decreases. 
C) project's net present value increases. 
D) accounting break-even point decreases. 
E) net profit increases.

Question 5

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

Accepted Answer

A) forecasting 
B) scenario 
C) sensitivity 
D) simulation 
E) break-even

Question 6

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

Accepted Answer

A) operational 
B) leveraged 
C) accounting 
D) cash 
E) financial

Question 7

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?

Accepted Answer

A) $8,265 
B) $8,454 
C) $8,530 
D) $8,709 
E) $8,510

Question 8

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?

Accepted Answer

A) $31.18 
B) $27.04 
C) $26.07 
D) $32.81 
E) $33.04

Question 9

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?

Accepted Answer

A) $27,319 
B) $32,400 
C) $31,994 
D) $26,700 
E) $23,508

Question 10

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?

Accepted Answer

A) Yes; Method A; because A has the lower initial cost 
B) Yes; Method A; because it will break-even on a financial basis with fewer annual sales 
C) Yes; Method B; because it has lower annual costs 
D) Yes; Method B; because B has a financial break-even quantity that is less than the expected sales units 
E) No; Neither method of production will financially break-even within the expected life of the project.

Question 11

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

Accepted Answer

A) operational 
B) leveraged 
C) accounting 
D) cash 
E) financial

Question 12

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.

Accepted Answer

The answer of The market value of an investment project...

Question 13

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?

Accepted Answer

A) 420 units 
B) 1,041 units 
C) 1,479 units 
D) 1,618 units 
E) 2,500 units

Question 14

Fixed costs:

Accepted Answer

A) change as the quantity of output produced changes. 
B) are constant over the short-run regardless of the quantity of output produced. 
C) reflect the change in a variable when one more unit of output is produced. 
D) are subtracted from sales to compute the contribution margin. 
E) can be ignored in scenario analysis since they are constant over the life of a project.

Question 15

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?

Accepted Answer

A) $50,807,953 
B) $48,326,218 
C) $52,009,107 
D) $47,362,515 
E) $45,887,056

Question 16

Conducting scenario analysis helps managers see the:

Accepted Answer

A) impact of an individual variable on the outcome of a project. 
B) expected range of outcomes from a proposed project. 
C) maximum range of outcomes that can occur over the course of a proposed project. 
D) various decision points of a specific project. 
E) consequences of changing a firm's market share for a specific product.

Question 17

Which one of the following statements is correct?

Accepted Answer

A) At the accounting break-even level,the pretax profit is equal to the aftertax profit. 
B) The contribution margin is equal to sales minus fixed costs. 
C) Taxes are considered when computing the accounting break-even point but not the financial break-even point. 
D) The larger the contribution margin,the higher the financial break-even point. 
E) The accounting break-even point is higher than the financial break-even point for the same project.

Question 18

Variable costs:

Accepted Answer

A) change in direct relationship to the quantity of output produced. 
B) are constant in the short-run regardless of the quantity of output produced. 
C) are equal to the change in the fixed assets required to change the level of output. 
D) are subtracted from fixed costs to compute the contribution margin. 
E) are added to fixed costs on a per-unit basis to compute the contribution margin.

Question 19

Sensitivity analysis is conducted by:

Accepted Answer

A) holding all variables at their base level and changing the required rate of return. 
B) changing the value of two variables to determine their interdependency. 
C) changing the value of a single variable and computing the resulting change in the project's NPV. 
D) assigning either the best or the worst possible value to every variable and comparing the results to the base case. 
E) reviewing a project after implementation to determine how the actual results are comparing to the predicted results.

Question 20

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?

Accepted Answer

A) 6,081 
B) 4,995 
C) 5,375 
D) 6,144 
E) 5,852

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