Question 1

The type of analysis that is most dependent upon the use of a computer is _____ analysis.

Accepted Answer

A)  Scenario. 
B)  Break-even. 
C)  Sensitivity. 
D)  Degree of operating leverage. 
E)  Simulation. 
A)  Scenario. 
B)  Break-even. 
C)  Sensitivity. 
D)  Degree of operating leverage. 
E)  Simulation.

Question 2

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 best case NPV for the project?

Accepted Answer

A)  $5,247 
B)  $26,462 
C)  $29,306 
D)  $32,327 
E)  $34,252 
A)  $5,247 
B)  $26,462 
C)  $29,306 
D)  $32,327 
E)  $34,252

Question 3

The accounting break-even point has a net present value is zero.

Accepted Answer

A) True 
 B)False

Question 4

Forecasting risk is deﬁned as the:

Accepted Answer

A)  Potential for the net income projections of a project to be erroneous. 
B)  Investigation of what happens to net present value when one estimated value is changed. 
C)  Possibility that errors in projected cash ﬂows will result in incorrect decisions. 
D)  Study of how changes in variable costs affect the net present value of a project. 
E)  Analysis of how the break-even point moves as the contribution margin changes over time. 
A)  Potential for the net income projections of a project to be erroneous. 
B)  Investigation of what happens to net present value when one estimated value is changed. 
C)  Possibility that errors in projected cash ﬂows will result in incorrect decisions. 
D)  Study of how changes in variable costs affect the net present value of a project. 
E)  Analysis of how the break-even point moves as the contribution margin changes over time.

Question 5

Sara Lee has noted that every time the sales quantity increases by 5 percent for a particular project, the operating cash ﬂow for the project increases by 8 percent. What is the degree of operating
Leverage for this project if the contribution margin is $2.50?

Accepted Answer

A)  .40 
B)  .63 
C)  .71 
D)  1.40 
E)  1.60 
A)  .40 
B)  .63 
C)  .71 
D)  1.40 
E)  1.60

Question 6

All else the same, if a ﬁrm revises its production process to use more labour and less machinery, the
ﬁrm will have an increased capital intensity.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following best describe the term scenario analysis.

Accepted Answer

A)  Investigation of what happens to NPV when only one variable is changed. 
B)  The determination of what happens to NPV estimates when we ask what-if questions. 
C)  The degree to which a ﬁrm or project relies on ﬁxed costs. 
D)  The change in costs that occurs when there is a small change in output. 
E)  Taking into account the managerial options that are implicit in a project. 
A)  Investigation of what happens to NPV when only one variable is changed. 
B)  The determination of what happens to NPV estimates when we ask what-if questions. 
C)  The degree to which a ﬁrm or project relies on ﬁxed costs. 
D)  The change in costs that occurs when there is a small change in output. 
E)  Taking into account the managerial options that are implicit in a project.

Question 8

Total costs _____________________.

Accepted Answer

A)  Change as a function of the quantity of output produced. 
B)  (For a given time period) are constant no matter the quantity of output produced. 
C)  Change as a function of the next unit of output produced. 
D)  Comprise the sum total of all production expenses of the ﬁrm for some time period. 
E)  comprise the sum total of all production expenses of the ﬁrm for some time period, expressed relative to the total output produced for that same time period. 
A)  Change as a function of the quantity of output produced. 
B)  (For a given time period) are constant no matter the quantity of output produced. 
C)  Change as a function of the next unit of output produced. 
D)  Comprise the sum total of all production expenses of the ﬁrm for some time period. 
E)  comprise the sum total of all production expenses of the ﬁrm for some time period, expressed relative to the total output produced for that same time period.

Question 9

The Alfonso Company is analyzing a project with expected sales of 4,000 units, give or take 5 percent. The expected variable cost per unit is $9 and the expected total ﬁxed costs are $17,000.
Cost estimates are considered accurate within a plus or minus 2 percent range. The depreciation
Expense is $3,000. The sale price is estimated at $18 a unit, give or take 5 percent. Sensitivity
Analysis is based on the most likely scenario.
What is the amount of the total variable costs under the best case scenario?

Accepted Answer

A)  $35,280 
B)  $36,720 
C)  $37,044 
D)  $37,918 
E)  $38,556 
A)  $35,280 
B)  $36,720 
C)  $37,044 
D)  $37,918 
E)  $38,556

Question 10

The NPV computed using static DCF analysis is _________ if the project gives us the opportunity
to invest additional funds if things go well; that is, it includes an option to expand.

Accepted Answer

A)  Understated. 
B)  Overstated. 
C)  Accurately stated even. 
D)  Not conservative enough. 
E)  Useless. 
A)  Understated. 
B)  Overstated. 
C)  Accurately stated even. 
D)  Not conservative enough. 
E)  Useless.

Question 11

An allocation method used to control overall spending by a ﬁrm is called:

Accepted Answer

A)  Soft rationing. 
B)  Hard rationing. 
C)  Incremental costing. 
D)  Marginal analysis. 
E)  Sensitivity analysis. 
A)  Soft rationing. 
B)  Hard rationing. 
C)  Incremental costing. 
D)  Marginal analysis. 
E)  Sensitivity analysis.

Question 12

A farmer near Medicine Hat hires a grain harvesting crew from Saskatchewan to harvest his wheat at the end of each summer. Because the crop yield varies from year to year, the crew charges the
Farmer according to the number of bushels actually harvested each year. For capital budgeting
Purposes, the harvesting charges should be classiﬁed as

Accepted Answer

A)  A ﬁxed cost since they must be paid each year. 
B)  A ﬁxed cost since the crew will be paid regardless of whether or not the crop is harvested. 
C)  A variable cost since, if the crop yield is zero bushels, the crew receives no payment. 
D)  A combination of ﬁxed and variable cost, the variable portion of which is based on forecast bushels harvested. 
E)  A variable cost only if the crop yield is poor in a given year. 
A)  A ﬁxed cost since they must be paid each year. 
B)  A ﬁxed cost since the crew will be paid regardless of whether or not the crop is harvested. 
C)  A variable cost since, if the crop yield is zero bushels, the crew receives no payment. 
D)  A combination of ﬁxed and variable cost, the variable portion of which is based on forecast bushels harvested. 
E)  A variable cost only if the crop yield is poor in a given year.

Question 13

BASIC INFORMATION: A three-year project will cost $60,000 to construct. This will be depreciated straight-line to zero over the three-year life. The price per unit sold is $20 and the variable cost per
Unit sold is $10. Fixed costs are $30,000 per year.
Using the BASIC INFORMATION, compute the DOL if the quantity sold is 7,000. (Ignore taxes.)

Accepted Answer

A)  0.75 
B)  1.36 
C)  1.49 
D)  1.75 
E)  2.36 
A)  0.75 
B)  1.36 
C)  1.49 
D)  1.75 
E)  2.36

Question 14

The sales level that results in a project's net income exactly equal to zero is called:

Accepted Answer

A)  Operational break-even. 
B)  Leveraged break-even. 
C)  Accounting break-even. 
D)  Cash break-even. 
E)  Financial break-even. 
A)  Operational break-even. 
B)  Leveraged break-even. 
C)  Accounting break-even. 
D)  Cash break-even. 
E)  Financial break-even.

Question 15

Amy is in charge of a project that has a degree of operating leverage of 3.2. What will happen to the operating cash ﬂows if Amy increases the number of units sold by 2 percent?

Accepted Answer

A)  Decrease by 1.6 percent. 
B)  Decrease by 6.4 percent. 
C)  Increase by 1.6 percent. 
D)  Increase by 4.8 percent. 
E)  Increase by 6.4 percent. 
A)  Decrease by 1.6 percent. 
B)  Decrease by 6.4 percent. 
C)  Increase by 1.6 percent. 
D)  Increase by 4.8 percent. 
E)  Increase by 6.4 percent.

Question 16

A project has the following estimated data: price = $150 per unit; variable costs = $88 per unit; ﬁxed costs = $250,000; required return = 11%; initial investment = $200,000; $50,000 salvage value; life =
Ten years. What is the cash break-even quantity?

Accepted Answer

A)  4,032 units. 
B)  4,274 units. 
C)  4,532 units. 
D)  4,784 units. 
E)  4,955 units. 
A)  4,032 units. 
B)  4,274 units. 
C)  4,532 units. 
D)  4,784 units. 
E)  4,955 units.

Question 17

A proposed project has ﬁxed costs of $3,600, depreciation expense of $1,500, and a sales quantity of 1,300 units. What is the contribution margin if the projected level of sales is the accounting break-
Even point?

Accepted Answer

A)  $3.92 
B)  $4.14 
C)  $4.50 
D)  $4.80 
E)  $5.00 
A)  $3.92 
B)  $4.14 
C)  $4.50 
D)  $4.80 
E)  $5.00

Question 18

The ﬁnancial break-even point plays a unique role in the decision making process. What is that role
and why is it important?

Accepted Answer

The ﬁnancial break-even point reveals th

Question 19

Which one of the following statements related to variable costs is correct?

Accepted Answer

A)  Variable costs ﬂuctuate over the long-term but remain constant over the short-term. 
B)  An increase in the variable cost per unit increases the contribution margin. 
C)  Variable costs change only when the quantity is varied by at least ﬁve percent. 
D)  When production is halted, the variable costs of a project equal zero. 
E)  The variable cost per unit is equal to the marginal cost at any level of output. 
A)  Variable costs ﬂuctuate over the long-term but remain constant over the short-term. 
B)  An increase in the variable cost per unit increases the contribution margin. 
C)  Variable costs change only when the quantity is varied by at least ﬁve percent. 
D)  When production is halted, the variable costs of a project equal zero. 
E)  The variable cost per unit is equal to the marginal cost at any level of output.

Question 20

Scenario analysis allows a ﬁrm to ask what-if type questions in capital budgeting.

Accepted Answer

A) True 
 B)False

Exam 11: Project Analysis and Evaluation

The type of analysis that is most dependent upon the use of a computer is _____ analysis.

The accounting break-even point has a net present value is zero.

Forecasting risk is deﬁned as the:

Sara Lee has noted that every time the sales quantity increases by 5 percent for a particular project, the operating cash ﬂow for the project increases by 8 percent. What is the degree of operating Leverage for this project if the contribution margin is $2.50?

All else the same, if a ﬁrm revises its production process to use more labour and less machinery, the ﬁrm will have an increased capital intensity.

Which of the following best describe the term scenario analysis.

Total costs _____________________.

The NPV computed using static DCF analysis is _________ if the project gives us the opportunity to invest additional funds if things go well; that is, it includes an option to expand.

An allocation method used to control overall spending by a ﬁrm is called:

The sales level that results in a project's net income exactly equal to zero is called:

Amy is in charge of a project that has a degree of operating leverage of 3.2. What will happen to the operating cash ﬂows if Amy increases the number of units sold by 2 percent?

A project has the following estimated data: price = $150 per unit; variable costs = $88 per unit; ﬁxed costs = $250,000; required return = 11%; initial investment = $200,000; $50,000 salvage value; life = Ten years. What is the cash break-even quantity?

A proposed project has ﬁxed costs of $3,600, depreciation expense of $1,500, and a sales quantity of 1,300 units. What is the contribution margin if the projected level of sales is the accounting break- Even point?

The ﬁnancial break-even point plays a unique role in the decision making process. What is that role and why is it important?

Which one of the following statements related to variable costs is correct?

Scenario analysis allows a ﬁrm to ask what-if type questions in capital budgeting.

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