Question 1

Capital intensive projects have a high degree of operating leverage.

Accepted Answer

A) True 
 B)False

Question 2

Webster United is considering adding a new product to their lineup. The company expects to sell 15,000 units, give or take 3 percent, of this item. The expected variable cost per unit is $12 and the
Expected total ﬁxed cost is $21,000. The ﬁxed and variable cost estimates are considered accurate
Within a plus or minus 5 percent range. The depreciation expense is $22,000. The tax rate is 35
Percent. The sale price is estimated at $15 a unit, give or take 2 percent.
What is the earnings before interest and taxes under the base case scenario?

Accepted Answer

A)  $1,860 
B)  $2,000 
C)  $2,400 
D)  $2,640 
E)  $2,850 
A)  $1,860 
B)  $2,000 
C)  $2,400 
D)  $2,640 
E)  $2,850

Question 3

The Lakeside Inn is considering expanding their operations. Fixed costs are estimated at $92,000 a year. The variable cost per unit is estimated at $22.50. The estimated sales price is $37.50 per unit.
What is the cash break-even point of this project? (Round to whole units.)

Accepted Answer

A)  6,133 
B)  6,420 
C)  6,667 
D)  7,000 
E)  7,180 
A)  6,133 
B)  6,420 
C)  6,667 
D)  7,000 
E)  7,180

Question 4

Costs that change in direct relation to the number of units produced are called _____ costs.

Accepted Answer

A)  Total 
B)  Incremental 
C)  Fixed 
D)  Marginal 
E)  Variable 
A)  Total 
B)  Incremental 
C)  Fixed 
D)  Marginal 
E)  Variable

Question 5

Seneca Timber Lands owns several acres of prime timberland. If the ﬁrm harvests the timber today, they could sell it for $4.5 million. However, Seneca believes that the timber will be worth $5.2
Million next year. Seneca should exercise the option to:

Accepted Answer

A)  Abandon. 
B)  Wait. 
C)  Quit. 
D)  Retire. 
E)  Expand. 
A)  Abandon. 
B)  Wait. 
C)  Quit. 
D)  Retire. 
E)  Expand.

Question 6

Which of the following best describe the term strategic options

Accepted Answer

A)  The sales level that results in zero project net income. 
B)  The sales level where operating cash ﬂow is equal to zero. 
C)  Costs that change when the quantity of output changes. 
D)  Options for future, related business products or strategies. 
E)  A combination of scenario and sensitivity analyses. 
A)  The sales level that results in zero project net income. 
B)  The sales level where operating cash ﬂow is equal to zero. 
C)  Costs that change when the quantity of output changes. 
D)  Options for future, related business products or strategies. 
E)  A combination of scenario and sensitivity analyses.

Question 7

The analysis of the effects on a project's net present value when only one variable changes is called ______ analysis.

Accepted Answer

A)  Simulation. 
B)  Upper and lower bound. 
C)  Scenario. 
D)  Sensitivity. 
E)  Break-even. 
A)  Simulation. 
B)  Upper and lower bound. 
C)  Scenario. 
D)  Sensitivity. 
E)  Break-even.

Question 8

The _____ break-even point corresponds to the sales quantity where the internal rate of return is equal to the required rate of return for the project.

Accepted Answer

A)  Accounting. 
B)  General. 
C)  Financial. 
D)  Cash. 
E)  Incremental. 
A)  Accounting. 
B)  General. 
C)  Financial. 
D)  Cash. 
E)  Incremental.

Question 9

Taking into account the managerial options implicit in a project is called:

Accepted Answer

A)  Managerial oversight. 
B)  Tactical planning. 
C)  Strategic planning. 
D)  Contingency planning. 
E)  Constrained capital budgeting analysis. 
A)  Managerial oversight. 
B)  Tactical planning. 
C)  Strategic planning. 
D)  Contingency planning. 
E)  Constrained capital budgeting analysis.

Question 10

A ﬁrm is considering a project with a cash break-even point of 13,500 units. The selling price is $13 a unit and the variable cost per unit is $7. What is the projected amount of ﬁxed costs?

Accepted Answer

A)  $64,000 
B)  $70,500 
C)  $74,500 
D)  $78,000 
E)  $81,000 
A)  $64,000 
B)  $70,500 
C)  $74,500 
D)  $78,000 
E)  $81,000

Question 11

Which of the following would likely be considered a variable cost for a given time period?

Accepted Answer

A)  Sales commissions. 
B)  Salary of the Chief Financial Oﬃcer. 
C)  Automobile lease expense. 
D)  Membership fee with the local seller's consortium. 
E)  Insurance for the corporation's buildings. 
A)  Sales commissions. 
B)  Salary of the Chief Financial Oﬃcer. 
C)  Automobile lease expense. 
D)  Membership fee with the local seller's consortium. 
E)  Insurance for the corporation's buildings.

Question 12

Variable costs can be ascertained with certainty when evaluating a proposed project.

Accepted Answer

A) True 
 B)False

Question 13

Matrix, Inc. currently has sales of $39,600, variable costs of $28,730, and ﬁxed costs of $8,280. If the company installs a new piece of equipment, the variable costs are expected to increase to
$34,970 and the number of units produced will increase from 2,800 to 4,100. What is the minimum
Price the company can accept for each of the additional units if they want to maintain their current
Level of net income?

Accepted Answer

A)  $1.52 
B)  $4.80 
C)  $5.73 
D)  $6.82 
E)  $10.55 
A)  $1.52 
B)  $4.80 
C)  $5.73 
D)  $6.82 
E)  $10.55

Question 14

A project has a contribution margin of $6, projected ﬁxed costs of $14,000, projected variable cost per unit of $14, and a projected ﬁnancial break-even point of 6,000 units. What is the operating
Cash ﬂow at this level of output?

Accepted Answer

A)  $22,000 
B)  $34,000 
C)  $46,000 
D)  $62,000 
E)  $70,000 
A)  $22,000 
B)  $34,000 
C)  $46,000 
D)  $62,000 
E)  $70,000

Question 15

Westover Farms has developed a new strain of feed corn which is expected to produce more ears per acre. The company is now analyzing the value of actually planting and harvesting their ﬁrst
Crops of this strain. The net present value (NPV) of the project is $740,000. This value was
Computed assuming that the project will last through ﬁve growing seasons. If Westover would
Include an option to abandon in the NPV computation, the NPV would:

Accepted Answer

A)  Not be affected. 
B)  Would decrease over the life of the project. 
C)  Would decrease, but only for the ﬁrst year of the project. 
D)  Increase, at least in the early years of the project. 
E)  Increase, but only if the project continues for the entire ﬁve years. 
A)  Not be affected. 
B)  Would decrease over the life of the project. 
C)  Would decrease, but only for the ﬁrst year of the project. 
D)  Increase, at least in the early years of the project. 
E)  Increase, but only if the project continues for the entire ﬁve years.

Question 16

Provide a deﬁnition for the term managerial options or real options.

Accepted Answer

Opportunities that m

Question 17

The Quick Producers Co. is analyzing a proposed project. The company expects to sell 10,000 units, give or take 5 percent. The expected variable cost per unit is $6 and the expected ﬁxed cost
Is $29,000. The ﬁxed and variable cost estimates are considered accurate within a plus or minus 4
Percent range. The depreciation expense is $25,000. The tax rate is 34 percent. The sale price is
Estimated at $13 a unit, give or take 6 percent.
What is the earnings before interest and taxes under the base case scenario?

Accepted Answer

A)  $10,560 
B)  $16,000 
C)  $22,440 
D)  $41,000 
E)  $66,000 
A)  $10,560 
B)  $16,000 
C)  $22,440 
D)  $41,000 
E)  $66,000

Question 18

Fast-food restaurants occasionally offer new menu items at a few locations to determine whether or not the product will be a success. This trial is a type of:

Accepted Answer

A)  Option to abandon. 
B)  Option to wait. 
C)  Real option. 
D)  A put option. 
E)  Strategic option. 
A)  Option to abandon. 
B)  Option to wait. 
C)  Real option. 
D)  A put option. 
E)  Strategic option.

Question 19

In a ﬁnancial break-even calculation, the payback period of the project is equal to the life of the
project.

Accepted Answer

A) True 
 B)False

Question 20

What is the base case ﬁnancial break-even point? Ignore taxes.

Accepted Answer

A)  1,500 
B)  1,917 
C)  2,300 
D)  2,431 
E)  2,535 
A)  1,500 
B)  1,917 
C)  2,300 
D)  2,431 
E)  2,535

Exam 11: Project Analysis and Evaluation

Capital intensive projects have a high degree of operating leverage.

The Lakeside Inn is considering expanding their operations. Fixed costs are estimated at $92,000 a year. The variable cost per unit is estimated at $22.50. The estimated sales price is $37.50 per unit. What is the cash break-even point of this project? (Round to whole units.)

Costs that change in direct relation to the number of units produced are called _____ costs.

Seneca Timber Lands owns several acres of prime timberland. If the ﬁrm harvests the timber today, they could sell it for $4.5 million. However, Seneca believes that the timber will be worth $5.2 Million next year. Seneca should exercise the option to:

Which of the following best describe the term strategic options

The analysis of the effects on a project's net present value when only one variable changes is called ______ analysis.

The _____ break-even point corresponds to the sales quantity where the internal rate of return is equal to the required rate of return for the project.

Taking into account the managerial options implicit in a project is called:

A ﬁrm is considering a project with a cash break-even point of 13,500 units. The selling price is $13 a unit and the variable cost per unit is $7. What is the projected amount of ﬁxed costs?

Which of the following would likely be considered a variable cost for a given time period?

Variable costs can be ascertained with certainty when evaluating a proposed project.

A project has a contribution margin of $6, projected ﬁxed costs of $14,000, projected variable cost per unit of $14, and a projected ﬁnancial break-even point of 6,000 units. What is the operating Cash ﬂow at this level of output?

Provide a deﬁnition for the term managerial options or real options.

Fast-food restaurants occasionally offer new menu items at a few locations to determine whether or not the product will be a success. This trial is a type of:

In a ﬁnancial break-even calculation, the payback period of the project is equal to the life of the project.

What is the base case ﬁnancial break-even point? Ignore taxes.

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