Question 1

In general, would the degree of forecasting risk be greater for a new product or a cost-cutting
proposal? Why?

Accepted Answer

The cost cutting proposal should have a

Question 2

A project has earnings before interest and taxes of $5,750, ﬁxed costs of $50,000, a selling price of $13 a unit, and a sales quantity of 11,500 units. Depreciation is $7,500. What is the variable cost per
Unit?

Accepted Answer

A)  $6.75 
B)  $7.00 
C)  $7.25 
D)  $7.50 
E)  $7.75 
A)  $6.75 
B)  $7.00 
C)  $7.25 
D)  $7.50 
E)  $7.75

Question 3

An increase in variable costs increases the operating cash ﬂow.

Accepted Answer

A) True 
 B)False

Question 4

Fixed costs are variable over long periods of time.

Accepted Answer

A) True 
 B)False

Question 5

Your company's scientists have developed an exciting new product that is unlike anything presently available to consumers. The NPV of bringing the product to market is positive yet you are uncertain
About the sales projections. The best way for you to test the validity of the sales projections is to
Use:

Accepted Answer

A)  Sensitivity and payback analysis. 
B)  Payback and break-even analysis. 
C)  Break-even and sensitivity analysis. 
D)  Operating leverage analysis. 
E)  IRR analysis. 
A)  Sensitivity and payback analysis. 
B)  Payback and break-even analysis. 
C)  Break-even and sensitivity analysis. 
D)  Operating leverage analysis. 
E)  IRR analysis.

Question 6

A proposed project has ﬁxed costs of $2,401.50, depreciation expense of $800, and a sales quantity of 950 units. What is the contribution margin if the projected level of sales is the
Accounting break-even point?

Accepted Answer

A)  $3.37 
B)  $3.42 
C)  $3.45 
D)  $3.49 
E)  $3.52 
A)  $3.37 
B)  $3.42 
C)  $3.45 
D)  $3.49 
E)  $3.52

Question 7

The ﬁxed costs of a project are $8,000. The depreciation expense is $3,500 and the operating cash ﬂow is $20,000. What is the degree of operating leverage for this project?

Accepted Answer

A)  .40 
B)  .71 
C)  .87 
D)  1.40 
E)  2.50 
A)  .40 
B)  .71 
C)  .87 
D)  1.40 
E)  2.50

Question 8

When you apply the highest sales price and the lowest costs in a project analysis, you are constructing:

Accepted Answer

A)  A best case scenario. 
B)  A base case scenario. 
C)  A worst case scenario. 
D)  A sensitivity to ﬁxed costs. 
E)  A sensitivity to sales quantity. 
A)  A best case scenario. 
B)  A base case scenario. 
C)  A worst case scenario. 
D)  A sensitivity to ﬁxed costs. 
E)  A sensitivity to sales quantity.

Question 9

Variable costs per unit over a given range are:

Accepted Answer

A)  Inversely related to the quantity of units sold. 
B)  Graphically represented by a linear function with a positive slope. 
C)  Not subjected to sensitivity analysis as long as the quantity sold is held to a reasonable range. 
D)  Equivalent to ﬁxed costs per unit at a zero production level. 
E)  Equivalent to marginal net income provided sales revenue is positive over the given range. 
A)  Inversely related to the quantity of units sold. 
B)  Graphically represented by a linear function with a positive slope. 
C)  Not subjected to sensitivity analysis as long as the quantity sold is held to a reasonable range. 
D)  Equivalent to ﬁxed costs per unit at a zero production level. 
E)  Equivalent to marginal net income provided sales revenue is positive over the given range.

Question 10

Wilson's Meats has computed their ﬁxed costs to be $1.32 for every kilogram of meat they sell given an average daily sales level of 500 kilograms. They charge $8.56 per kilogram of top-grade ground
Beef. The variable cost per kilogram is $6.58. What is the contribution margin per kilogram of
Ground beef sold?

Accepted Answer

A)  $.66 
B)  $1.32 
C)  $1.98 
D)  $6.58 
E)  $8.56 
A)  $.66 
B)  $1.32 
C)  $1.98 
D)  $6.58 
E)  $8.56

Question 11

After ten years as a general auto mechanic in a local garage, Joe decides he is tired of working for others, especially since business is typically slow and he works partially on commission. So, he
Decides to open his own garage. After estimating the cash ﬂows for his new garage, he ﬁnds a
Large, positive NPV. Which of the following is most likely true about his analysis?

Accepted Answer

A)  The discount rate he used must be too low. 
B)  Unless he can ﬁnd a true source of value in his new venture, he probably made a mistake in estimating his cash ﬂows. 
C)  He has likely been overly optimistic about the future and has underestimated future cash ﬂows. 
D)  His estimates of initial outlays must be off. 
E)  His analysis is probably correct provided there is adequate competition in the auto repair business. 
A)  The discount rate he used must be too low. 
B)  Unless he can ﬁnd a true source of value in his new venture, he probably made a mistake in estimating his cash ﬂows. 
C)  He has likely been overly optimistic about the future and has underestimated future cash ﬂows. 
D)  His estimates of initial outlays must be off. 
E)  His analysis is probably correct provided there is adequate competition in the auto repair business.

Question 12

Genevieve has developed a computer software program that analyzes potential project outcomes. The software randomly assigns a value to each of the variables, such as sales quantity and variable
Cost per unit, and generates the resulting net present value for the project. This process is repeated
Hundreds of times with each variable always being assigned a random value within a given range of
Possible values. The software then produces a graph depicting the net present values that were
Generated. By using this software, Genevieve is conducting _____ analysis.

Accepted Answer

A)  Sensitivity. 
B)  Scenario. 
C)  Simulation. 
D)  Financial break-even. 
E)  Cash break-even. 
A)  Sensitivity. 
B)  Scenario. 
C)  Simulation. 
D)  Financial break-even. 
E)  Cash break-even.

Question 13

Magellen Industries is analyzing a new project. The data they have gathered to date is as follows:   Initial requirement for equipment: $120,000 Depreciation: Straight-line to zero over the four-year life of the project with no salvage value.
Required rate of return: 15%
Marginal tax rate: 35%
What is the degree of operating leverage under the worst-case scenario?

Accepted Answer

A)  .93 
B)  1.07 
C)  1.63 
D)  1.93 
E)  2.07 
A)  .93 
B)  1.07 
C)  1.63 
D)  1.93 
E)  2.07

Question 14

A project has projected sales of 25,600 units with a selling price of $4.95 each. Annual ﬁxed costs are $31,000 with variable costs of $2.18 per unit. The project has a three-year life and requires an
Initial investment of $62,900 for equipment. The equipment will be depreciated straight-line to zero
Over three years. The sales price has a plus-minus range of 10% while the cost estimates are
Expected to vary within a 5% range. The quantity has a plus-minus range of 8%. The tax rate is 34%.
Under the best-case scenario, what is the operating cash ﬂow?

Accepted Answer

A)  $22,268 
B)  $28,292 
C)  $42,867 
D)  $43,235 
E)  $49,259 
A)  $22,268 
B)  $28,292 
C)  $42,867 
D)  $43,235 
E)  $49,259

Question 15

A project with a high degree of operating leverage has relatively high variable costs.

Accepted Answer

A) True 
 B)False

Question 16

Which one of the following statements is true concerning operating leverage?

Accepted Answer

A)  The higher the degree of operating leverage, the greater the impact of forecasting risk. 
B)  Firms with low operating leverage are said to be capital intensive. 
C)  The degree of operating leverage is equal to [1 + (OCF/F
C) ]. 
D)  The degree of operating leverage is equal to the percent change in quantity divided by the percent change in operating cash ﬂow. 
E)  Operating leverage increases as the output quantity rises. 
A)  The higher the degree of operating leverage, the greater the impact of forecasting risk. 
B)  Firms with low operating leverage are said to be capital intensive. 
C)  The degree of operating leverage is equal to [1 + (OCF/F
C) ]. 
D)  The degree of operating leverage is equal to the percent change in quantity divided by the percent change in operating cash ﬂow. 
E)  Operating leverage increases as the output quantity rises.

Question 17

The NPV is equal to zero in a ﬁnancial break-even calculation.

Accepted Answer

A) True 
 B)False

Question 18

Provide a deﬁnition for the term scenario analysis.

Accepted Answer

The determination of

Question 19

ABC, Inc. is considering a project with a discounted payback just equal to the project's life. The projections include a sales price of $13, variable cost per unit of $10.50, and ﬁxed costs of $5,000.
The operating cash ﬂow is $6,300. What is the break-even quantity?

Accepted Answer

A)  3,869 units 
B)  3,913 units 
C)  4,340 units 
D)  4,520 units 
E)  4,610 units 
A)  3,869 units 
B)  3,913 units 
C)  4,340 units 
D)  4,520 units 
E)  4,610 units

Question 20

A project has a discounted payback period just equal to the project's life. The projections include a sales price of $21.90, a variable cost per unit of $14.80, and ﬁxed costs of $27,200. The operating
Cash ﬂow is $14,260. What is the break-even quantity?

Accepted Answer

A)  2,008.45 units 
B)  3,830.99 units 
C)  4,316.89 units 
D)  5,839.44 units. 
E)  6,240.01 units. 
A)  2,008.45 units 
B)  3,830.99 units 
C)  4,316.89 units 
D)  5,839.44 units. 
E)  6,240.01 units.

In general, would the degree of forecasting risk be greater for a new product or a cost-cutting proposal? Why?

A project has earnings before interest and taxes of $5,750, ﬁxed costs of $50,000, a selling price of $13 a unit, and a sales quantity of 11,500 units. Depreciation is $7,500. What is the variable cost per Unit?

An increase in variable costs increases the operating cash ﬂow.

Fixed costs are variable over long periods of time.

A proposed project has ﬁxed costs of $2,401.50, depreciation expense of $800, and a sales quantity of 950 units. What is the contribution margin if the projected level of sales is the Accounting break-even point?

The ﬁxed costs of a project are $8,000. The depreciation expense is $3,500 and the operating cash ﬂow is $20,000. What is the degree of operating leverage for this project?

When you apply the highest sales price and the lowest costs in a project analysis, you are constructing:

Variable costs per unit over a given range are:

A project with a high degree of operating leverage has relatively high variable costs.

Which one of the following statements is true concerning operating leverage?

The NPV is equal to zero in a ﬁnancial break-even calculation.

Provide a deﬁnition for the term scenario analysis.

ABC, Inc. is considering a project with a discounted payback just equal to the project's life. The projections include a sales price of $13, variable cost per unit of $10.50, and ﬁxed costs of $5,000. The operating cash ﬂow is $6,300. What is the break-even quantity?

A project has a discounted payback period just equal to the project's life. The projections include a sales price of $21.90, a variable cost per unit of $14.80, and ﬁxed costs of $27,200. The operating Cash ﬂow is $14,260. What is the break-even quantity?

Introduction to Corporate Finance

Financial Statements, Taxes, and Cash Flow

Working With Financial Statements

Long-Term Financial Planning and Growth

Introduction to Valuation: the Time Value of Money

Discounted Cash Flow Valuation

Interest Rates and Bond Valuation

Stock Valuation

Net Present Value and Other Investment Criteria

Making Capital Investment Decisions

Some Lessons From Capital Market History

Return, Risk, and the Security Market Line

Cost of Capital

Raising Capital

Financial Leverage and Capital Structure Policy

Dividends and Payout Policy

Short-Term Finance and Planning

Cash and Liquidity Management

Credit and Inventory Management

International Corporate Finance

Behavioral Finance: Implications for Financial Management

Enterprise Risk Management

Options and Corporate Finance

Option Valuation

Mergers and Acquisitions

Filters

Exam 11: Project Analysis and Evaluation

In general, would the degree of forecasting risk be greater for a new product or a cost-cutting proposal? Why?

A project has earnings before interest and taxes of $5,750, ﬁxed costs of $50,000, a selling price of $13 a unit, and a sales quantity of 11,500 units. Depreciation is $7,500. What is the variable cost per Unit?

An increase in variable costs increases the operating cash ﬂow.

Fixed costs are variable over long periods of time.

A proposed project has ﬁxed costs of $2,401.50, depreciation expense of $800, and a sales quantity of 950 units. What is the contribution margin if the projected level of sales is the Accounting break-even point?

The ﬁxed costs of a project are $8,000. The depreciation expense is $3,500 and the operating cash ﬂow is $20,000. What is the degree of operating leverage for this project?

When you apply the highest sales price and the lowest costs in a project analysis, you are constructing:

Variable costs per unit over a given range are:

A project with a high degree of operating leverage has relatively high variable costs.

Which one of the following statements is true concerning operating leverage?

The NPV is equal to zero in a ﬁnancial break-even calculation.

Provide a deﬁnition for the term scenario analysis.

ABC, Inc. is considering a project with a discounted payback just equal to the project's life. The projections include a sales price of $13, variable cost per unit of $10.50, and ﬁxed costs of $5,000. The operating cash ﬂow is $6,300. What is the break-even quantity?

A project has a discounted payback period just equal to the project's life. The projections include a sales price of $21.90, a variable cost per unit of $14.80, and ﬁxed costs of $27,200. The operating Cash ﬂow is $14,260. What is the break-even quantity?

Introduction to Corporate Finance

Financial Statements, Taxes, and Cash Flow

Working With Financial Statements

Long-Term Financial Planning and Growth

Introduction to Valuation: the Time Value of Money

Discounted Cash Flow Valuation

Interest Rates and Bond Valuation

Stock Valuation

Net Present Value and Other Investment Criteria

Making Capital Investment Decisions

Some Lessons From Capital Market History

Return, Risk, and the Security Market Line

Cost of Capital

Raising Capital

Financial Leverage and Capital Structure Policy

Dividends and Payout Policy

Short-Term Finance and Planning

Cash and Liquidity Management

Credit and Inventory Management

International Corporate Finance

Behavioral Finance: Implications for Financial Management

Enterprise Risk Management

Options and Corporate Finance

Option Valuation

Mergers and Acquisitions

Filters