Exam 11: Project Analysis and Evaluation

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Which of the following statements regarding NPV analysis is correct?

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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?

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

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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.

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

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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.)

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

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

(True/False)
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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.

(True/False)
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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?

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Projected fixed costs is generally least subject to forecasting risk.

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

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

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

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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?

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The contribution margin is defined as the difference between the:

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Sensitivity analysis helps you determine the:

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

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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?

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Soft rationing can lead to hard rationing.

(True/False)
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