Question 1

What is the contribution margin for a sensitivity analysis using a variable cost per unit of $9?

Accepted Answer

A)  $3 
B)  $4 
C)  $7 
D)  $9 
E)  $13 
A)  $3 
B)  $4 
C)  $7 
D)  $9 
E)  $13

Question 2

Martin Shores, Inc. is facing ﬁnancial diﬃculties and has ceased production. Management realizes that the ﬁrm will still incur $15,000 of costs each month until such time as the ﬁrm is sold. This
$15,000 represents the _____ costs of the ﬁrm's operations.

Accepted Answer

A)  Total. 
B)  Fixed. 
C)  Variable. 
D)  Net. 
E)  Contribution. 
A)  Total. 
B)  Fixed. 
C)  Variable. 
D)  Net. 
E)  Contribution.

Question 3

A ﬁrm has ﬁxed costs of $30,000 per year, depreciation of $10,000 per year, a price per unit of $50, and an accounting break-even point of 2,000 units. What are the ﬁrm's total variable costs at the
Accounting break-even point?

Accepted Answer

A)  $40,000 
B)  $50,000 
C)  $60,000 
D)  $70,000 
E)  $80,000 
A)  $40,000 
B)  $50,000 
C)  $60,000 
D)  $70,000 
E)  $80,000

Question 4

A project that just breaks even on a cash basis will not pay back.

Accepted Answer

A) True 
 B)False

Question 5

Variable costs are equal to zero when production is equal to zero.

Accepted Answer

A) True 
 B)False

Question 6

The discounted payback is equal to the life of the project in a ﬁnancial break-even calculation.

Accepted Answer

A) True 
 B)False

Question 7

A golf course/property developer buys twice as much land as is needed to build an 18 hole golf course and housing development so that, if things go very well, a second 18 hole golf course and
Housing project can be added to the project. The developer is prepared to exercise the:

Accepted Answer

A)  Option to default. 
B)  Option to expand. 
C)  Option to abandon. 
D)  Option to wait. 
E)  Option to rebuild. 
A)  Option to default. 
B)  Option to expand. 
C)  Option to abandon. 
D)  Option to wait. 
E)  Option to rebuild.

Question 8

Provide a deﬁnition for the term ﬁxed costs.

Accepted Answer

Costs that do not ch

Question 9

Fixed costs must be paid even if production is halted.

Accepted Answer

A) True 
 B)False

Question 10

Provide a deﬁnition for the term degree of operating leverage.

Accepted Answer

The percentage chang

Question 11

The ﬁxed costs of a project are $6,000. The depreciation expense is $4,500 and the operating cash ﬂow is $18,000. What is the degree of operating leverage for this project?

Accepted Answer

A)  1.33 
B)  1.44 
C)  1.50 
D)  2.25 
E)  3.00 
A)  1.33 
B)  1.44 
C)  1.50 
D)  2.25 
E)  3.00

Question 12

All else the same, if you decrease ﬁxed costs, accounting break-even will also decline.

Accepted Answer

A) True 
 B)False

Question 13

The option to wait may be of minimal value if the project relates to a rapidly changing technology.

Accepted Answer

A) True 
 B)False

Question 14

In previous chapters, we calculated NPV based on a project's forecast cash ﬂows. When doing what-if analysis, this initial estimate is called the ______________.

Accepted Answer

A)  Initial analysis. 
B)  First go-around. 
C)  Base case. 
D)  Initial projection. 
E)  Best case scenario. 
A)  Initial analysis. 
B)  First go-around. 
C)  Base case. 
D)  Initial projection. 
E)  Best case scenario.

Question 15

Which of the following statements is accurate?

Accepted Answer

A)  A project that just breaks even on an accounting basis will not pay back. 
B)  A project that just breaks even on an accounting basis will have a positive rate of return. 
C)  A project cannot earn a positive return unless its payback period is longer than the project life. 
D)  If the net income from a project is zero, then the project will have a discounted payback that is equal to its regular payback. 
E)  The relation between project life and payback period alone cannot tell you whether a project has a positive or negative NPV. 
A)  A project that just breaks even on an accounting basis will not pay back. 
B)  A project that just breaks even on an accounting basis will have a positive rate of return. 
C)  A project cannot earn a positive return unless its payback period is longer than the project life. 
D)  If the net income from a project is zero, then the project will have a discounted payback that is equal to its regular payback. 
E)  The relation between project life and payback period alone cannot tell you whether a project has a positive or negative NPV.

Question 16

A project requires an initial investment of $10,000, straight-line depreciable to zero over four years. The discount rate is 10%. Your tax bracket is 34% and you receive a tax credit for negative earnings
In the year in which the loss occurs. Additional information for variables with forecast error are
Shown below.   What is the worst case NPV for the project?

Accepted Answer

A)  -$11,594 
B)  -$10,967 
C)  -$4,423 
D)  -$2,327 
E)  +$3,677 
A)  -$11,594 
B)  -$10,967 
C)  -$4,423 
D)  -$2,327 
E)  +$3,677

Question 17

If a ﬁrm's ﬁxed costs are exactly equal to its depreciation expense, and both are greater than zero, then at its accounting break-even point the DOL _______________.

Accepted Answer

A)  Is equal to one. 
B)  Is equal to two. 
C)  Is greater than two. 
D)  Is undeﬁned since you can't divide by zero. 
E)  Cannot be determined without more information. 
A)  Is equal to one. 
B)  Is equal to two. 
C)  Is greater than two. 
D)  Is undeﬁned since you can't divide by zero. 
E)  Cannot be determined without more information.

Question 18

In a ﬁnancial break-even calculation, the project never pays back on a discounted basis.

Accepted Answer

A) True 
 B)False

Question 19

The contribution margin must increase as:

Accepted Answer

A)  Both the sales price and variable cost per unit increase. 
B)  The ﬁxed cost per unit declines. 
C)  The gap between the sales price and the variable cost per unit widens. 
D)  Sales price per unit declines. 
E)  The sales price minus the ﬁxed cost per unit increases. 
A)  Both the sales price and variable cost per unit increase. 
B)  The ﬁxed cost per unit declines. 
C)  The gap between the sales price and the variable cost per unit widens. 
D)  Sales price per unit declines. 
E)  The sales price minus the ﬁxed cost per unit increases.

Question 20

The Wiltmore Co. would like to add a new product to complete their lineup. They want to know how many units they must sell to limit their potential loss to their initial investment. What is this quantity if
Their ﬁxed costs are $12,000, the depreciation expense is $2,500, and the contribution margin is
$1)30? (Round to whole units)

Accepted Answer

A)  9,231 units 
B)  9,903 units 
C)  10,002 units 
D)  10,629 units 
E)  11,154 units 
A)  9,231 units 
B)  9,903 units 
C)  10,002 units 
D)  10,629 units 
E)  11,154 units

Exam 11: Project Analysis and Evaluation

What is the contribution margin for a sensitivity analysis using a variable cost per unit of $9?

Martin Shores, Inc. is facing ﬁnancial diﬃculties and has ceased production. Management realizes that the ﬁrm will still incur $15,000 of costs each month until such time as the ﬁrm is sold. This $15,000 represents the _____ costs of the ﬁrm's operations.

A ﬁrm has ﬁxed costs of $30,000 per year, depreciation of $10,000 per year, a price per unit of $50, and an accounting break-even point of 2,000 units. What are the ﬁrm's total variable costs at the Accounting break-even point?

A project that just breaks even on a cash basis will not pay back.

Variable costs are equal to zero when production is equal to zero.

The discounted payback is equal to the life of the project in a ﬁnancial break-even calculation.

A golf course/property developer buys twice as much land as is needed to build an 18 hole golf course and housing development so that, if things go very well, a second 18 hole golf course and Housing project can be added to the project. The developer is prepared to exercise the:

Provide a deﬁnition for the term ﬁxed costs.

Fixed costs must be paid even if production is halted.

Provide a deﬁnition for the term degree of operating leverage.

The ﬁxed costs of a project are $6,000. The depreciation expense is $4,500 and the operating cash ﬂow is $18,000. What is the degree of operating leverage for this project?

All else the same, if you decrease ﬁxed costs, accounting break-even will also decline.

The option to wait may be of minimal value if the project relates to a rapidly changing technology.

In previous chapters, we calculated NPV based on a project's forecast cash ﬂows. When doing what-if analysis, this initial estimate is called the ______________.

Which of the following statements is accurate?

If a ﬁrm's ﬁxed costs are exactly equal to its depreciation expense, and both are greater than zero, then at its accounting break-even point the DOL _______________.

In a ﬁnancial break-even calculation, the project never pays back on a discounted basis.

The contribution margin must increase as:

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