Question 1

Which of the following statements regarding NPV analysis is correct?

Accepted Answer

A)  NPV calculations do not depend critically on cash ﬂow projections. 
B)  NPV calculations are only as good as the information that goes into their calculation. 
C)  Negative NPV projects should be scrutinized to make sure there is a sound economic basis underlying them. 
D)  Positive NPV projects that have relatively low levels of ﬁxed costs should be more heavily scrutinized than projects with relatively high levels of ﬁxed costs. 
E)  NPV calculations will lead to correct decision-making even if the wrong discount rate is used. 
A)  NPV calculations do not depend critically on cash ﬂow projections. 
B)  NPV calculations are only as good as the information that goes into their calculation. 
C)  Negative NPV projects should be scrutinized to make sure there is a sound economic basis underlying them. 
D)  Positive NPV projects that have relatively low levels of ﬁxed costs should be more heavily scrutinized than projects with relatively high levels of ﬁxed costs. 
E)  NPV calculations will lead to correct decision-making even if the wrong discount rate is used.

Question 2

A project has the following estimated data: price = $200 per unit; variable costs = $150 per unit; ﬁxed costs = $400,000; required return = 9%; initial investment = $1,500,000; $200,000 salvage
Value; life = 15 years. What is the accounting break-even quantity?

Accepted Answer

A)  7,033 units. 
B)  7,733 units. 
C)  8,033 units. 
D)  9,733 units. 
E)  10,033 units. 
A)  7,033 units. 
B)  7,733 units. 
C)  8,033 units. 
D)  9,733 units. 
E)  10,033 units.

Question 3

Which one of the following is an example of a strategic option?

Accepted Answer

A)  Opening a new store with a totally new retail design concept to determine if the plan will be well received by consumers. 
B)  Halting production for one week due to slower than expected sales. 
C)  Stopping a ﬁve-year project after six months due to a lack of consumer demand. 
D)  Deciding to only open 5 new retail outlets instead of the 10 outlets that were planned. 
E)  Deciding to change the manufacturing process half way through a project. 
A)  Opening a new store with a totally new retail design concept to determine if the plan will be well received by consumers. 
B)  Halting production for one week due to slower than expected sales. 
C)  Stopping a ﬁve-year project after six months due to a lack of consumer demand. 
D)  Deciding to only open 5 new retail outlets instead of the 10 outlets that were planned. 
E)  Deciding to change the manufacturing process half way through a project.

Question 4

If a project manager wants to know which aspects of a project require the closest monitoring to ensure that the project remains proﬁtable, the manager should use the technique known as _____
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 5

The option to wait is partially dependent upon the discount rate applied to the project being
evaluated.

Accepted Answer

A) True 
 B)False

Question 6

If a ﬁrm's ﬁxed costs are exactly equal to its depreciation expense, and both are greater than zero, then at its ﬁnancial break-even point the DOL ____________. (Assume that the project has
Conventional cash ﬂows, no salvage value, and no net working capital investments.)

Accepted Answer

A)  Is less than two. 
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 less than two. 
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 7

The additional cost incurred when one more unit of output is produced is referred to as the _____ cost.

Accepted Answer

A)  Average. 
B)  Forecasted. 
C)  Marginal. 
D)  Sensitivity. 
E)  Simulation. 
A)  Average. 
B)  Forecasted. 
C)  Marginal. 
D)  Sensitivity. 
E)  Simulation.

Question 8

All else the same, if you decrease ﬁxed costs, operating leverage will also decline.

Accepted Answer

A) True 
 B)False

Question 9

The option to wait has a value equal to the net present value of the project if it is started today
versus the net present value if it is started at some later date.

Accepted Answer

A) True 
 B)False

Question 10

The Handelcreek Co. is considering expanding their operations. Fixed costs are estimated at $86,000 a year. The variable cost per unit is estimated at $18.50. The estimated sales price is
$34)00 per unit. What is the cash break-even point of this project?

Accepted Answer

A)  2,529 units 
B)  4,649 units 
C)  5,548 units 
D)  7,114 units 
E)  9,740 units 
A)  2,529 units 
B)  4,649 units 
C)  5,548 units 
D)  7,114 units 
E)  9,740 units

Question 11

Projected ﬁxed costs is generally least subject to forecasting risk.

Accepted Answer

A) True 
 B)False

Question 12

An analysis of what happens to NPV estimates when only one variable is changed is called:

Accepted Answer

A)  Forecasting analysis. 
B)  Scenario analysis. 
C)  Sensitivity analysis. 
D)  Simulation analysis. 
E)  Break-even analysis. 
A)  Forecasting analysis. 
B)  Scenario analysis. 
C)  Sensitivity analysis. 
D)  Simulation analysis. 
E)  Break-even analysis.

Question 13

A project that just breaks even on a ﬁnancial basis has a discounted payback equal to the project's
life.

Accepted Answer

A) True 
 B)False

Question 14

The percentage change in ﬁrm (or project) operating cash ﬂow relative to the percentage change in quantity sold is called (the):

Accepted Answer

A)  Cash ﬂow marginal proﬁt. 
B)  Degree of operating leverage. 
C)  Gross proﬁt. 
D)  Net proﬁt. 
E)  Financial break-even. 
A)  Cash ﬂow marginal proﬁt. 
B)  Degree of operating leverage. 
C)  Gross proﬁt. 
D)  Net proﬁt. 
E)  Financial break-even.

Question 15

Taylor and Ashcroft is reviewing a new product with labour cost of $16.40 per unit, raw materials cost of $41.65 a unit, and ﬁxed costs of $164,000 a year. Sales are projected at 85,000 units per
Year over the 3-year life of the product. What is the amount of the total variable costs per year?

Accepted Answer

A)  $3,540,250 
B)  $3,780,500 
C)  $4,221,500 
D)  $4,770,250 
E)  $4,934,250 
A)  $3,540,250 
B)  $3,780,500 
C)  $4,221,500 
D)  $4,770,250 
E)  $4,934,250

Question 16

The contribution margin is deﬁned as the difference between the:

Accepted Answer

A)  Unit sales price and the total cost per unit. 
B)  Unit sales price and the variable cost per unit. 
C)  Variable and ﬁxed costs per unit. 
D)  Pre-tax and after-tax costs per unit. 
E)  Unit sales price and the pre-tax cost per unit. 
A)  Unit sales price and the total cost per unit. 
B)  Unit sales price and the variable cost per unit. 
C)  Variable and ﬁxed costs per unit. 
D)  Pre-tax and after-tax costs per unit. 
E)  Unit sales price and the pre-tax cost per unit.

Question 17

Sensitivity analysis helps you determine the:

Accepted Answer

A)  Range of possible outcomes given possible ranges for every variable. 
B)  Degree to which the net present value reacts to changes in a single variable. 
C)  Net present value given the best and the worst possible situations. 
D)  Degree to which a project is reliant upon the ﬁxed costs. 
E)  Level of variable costs in relation to the ﬁxed costs of a project. 
A)  Range of possible outcomes given possible ranges for every variable. 
B)  Degree to which the net present value reacts to changes in a single variable. 
C)  Net present value given the best and the worst possible situations. 
D)  Degree to which a project is reliant upon the ﬁxed costs. 
E)  Level of variable costs in relation to the ﬁxed costs of a project.

Question 18

Economic theory suggests that ___________ the likelihood of discovering a positive NPV project.

Accepted Answer

A)  the more competitive the market, the higher 
B)  there is a positive relation between the competitiveness of a market and 
C)  the competitiveness of a market has an indirect impact on 
D)  the competitiveness of a market has an insigniﬁcant impact on 
E)  competitive markets decrease 
A)  the more competitive the market, the higher 
B)  there is a positive relation between the competitiveness of a market and 
C)  the competitiveness of a market has an indirect impact on 
D)  the competitiveness of a market has an insigniﬁcant impact on 
E)  competitive markets decrease

Question 19

A proposed project has ﬁxed costs of $3,700, depreciation expense of $1,400, and a sales quantity of 1,500 units. What is the contribution margin if the projected level of sales is the accounting break-
Even point?

Accepted Answer

A)  $2.47 
B)  $2.64 
C)  $3.10 
D)  $3.40 
E)  $3.71 
A)  $2.47 
B)  $2.64 
C)  $3.10 
D)  $3.40 
E)  $3.71

Question 20

Soft rationing can lead to hard rationing.

Accepted Answer

A) True 
 B)False

Exam 11: Project Analysis and Evaluation

Which of the following statements regarding NPV analysis is correct?

A project has the following estimated data: price = $200 per unit; variable costs = $150 per unit; ﬁxed costs = $400,000; required return = 9%; initial investment = $1,500,000; $200,000 salvage Value; life = 15 years. What is the accounting break-even quantity?

Which one of the following is an example of a strategic option?

If a project manager wants to know which aspects of a project require the closest monitoring to ensure that the project remains proﬁtable, the manager should use the technique known as _____ Analysis.

The option to wait is partially dependent upon the discount rate applied to the project being evaluated.

If a ﬁrm's ﬁxed costs are exactly equal to its depreciation expense, and both are greater than zero, then at its ﬁnancial break-even point the DOL ____________. (Assume that the project has Conventional cash ﬂows, no salvage value, and no net working capital investments.)

The additional cost incurred when one more unit of output is produced is referred to as the _____ cost.

All else the same, if you decrease ﬁxed costs, operating leverage will also decline.

The option to wait has a value equal to the net present value of the project if it is started today versus the net present value if it is started at some later date.

The Handelcreek Co. is considering expanding their operations. Fixed costs are estimated at $86,000 a year. The variable cost per unit is estimated at $18.50. The estimated sales price is $34)00 per unit. What is the cash break-even point of this project?

Projected ﬁxed costs is generally least subject to forecasting risk.

An analysis of what happens to NPV estimates when only one variable is changed is called:

A project that just breaks even on a ﬁnancial basis has a discounted payback equal to the project's life.

The percentage change in ﬁrm (or project) operating cash ﬂow relative to the percentage change in quantity sold is called (the):

Taylor and Ashcroft is reviewing a new product with labour cost of $16.40 per unit, raw materials cost of $41.65 a unit, and ﬁxed costs of $164,000 a year. Sales are projected at 85,000 units per Year over the 3-year life of the product. What is the amount of the total variable costs per year?

The contribution margin is deﬁned as the difference between the:

Sensitivity analysis helps you determine the:

Economic theory suggests that ___________ the likelihood of discovering a positive NPV project.

A proposed project has ﬁxed costs of $3,700, depreciation expense of $1,400, and a sales quantity of 1,500 units. What is the contribution margin if the projected level of sales is the accounting break- Even point?

Soft rationing can lead to hard rationing.

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