Question 1

If you are contrasting the most optimistic situation to the most pessimistic situation which might be created by a project you are conducting _____ analysis.

Accepted Answer

A)  Sensitivity. 
B)  Scenario. 
C)  Accounting break-even. 
D)  Financial break-even. 
E)  Cash break-even. 
A)  Sensitivity. 
B)  Scenario. 
C)  Accounting break-even. 
D)  Financial break-even. 
E)  Cash break-even.

Question 2

The process in which a business allocates a certain amount of ﬁnancing for capital spending to each business unit is called:

Accepted Answer

A)  Soft rationing. 
B)  Hard rationing. 
C)  Capital rationing. 
D)  Sensitivity allocation. 
E)  Incremental allocation. 
A)  Soft rationing. 
B)  Hard rationing. 
C)  Capital rationing. 
D)  Sensitivity allocation. 
E)  Incremental allocation.

Question 3

What is the base case cash break-even point?

Accepted Answer

A)  1,500 
B)  1,800 
C)  1,917 
D)  2,300 
E)  2,237 
A)  1,500 
B)  1,800 
C)  1,917 
D)  2,300 
E)  2,237

Question 4

Provide a deﬁnition for the term cash break-even.

Accepted Answer

The sales level wher

Question 5

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 ﬁnancial break-even quantity?

Accepted Answer

A)  9,586 units. 
B)  10,086 units. 
C)  10,586 units. 
D)  11,086 units. 
E)  11,586 units. 
A)  9,586 units. 
B)  10,086 units. 
C)  10,586 units. 
D)  11,086 units. 
E)  11,586 units.

Question 6

The OCF is equal to zero in a ﬁnancial break-even calculation.

Accepted Answer

A) True 
 B)False

Question 7

The costs that occur when the number of units produced is equal to zero are called the ____ costs.

Accepted Answer

A)  Variable 
B)  Fixed 
C)  Incremental 
D)  Opportunity 
E)  Non-cash 
A)  Variable 
B)  Fixed 
C)  Incremental 
D)  Opportunity 
E)  Non-cash

Question 8

Variable costs change with the quantity of output produced.

Accepted Answer

A) True 
 B)False

Question 9

The management of the Wish We Could Co. has numerous requests on their desks from division managers. These requests are seeking funds for positive net present value projects with projected
Rates of return ranging from 8 percent to 100 percent. Management determines that they must deny
All funding requests due to the ﬁnancial situation of the company. Management is apparently in a
Situation referred to as:

Accepted Answer

A)  Accounting break-even. 
B)  Financial break-even. 
C)  Hard rationing. 
D)  Zero leverage. 
E)  Maximum capital intensity. 
A)  Accounting break-even. 
B)  Financial break-even. 
C)  Hard rationing. 
D)  Zero leverage. 
E)  Maximum capital intensity.

Question 10

An analysis of what happens to NPV estimates when many variables take on many different values simultaneously 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 11

A project has an initial cost of $46,000 for equipment, which will be depreciated straight-line to zero over the four-year life of the project. There is no salvage value on the equipment. No working
Capital is required. Sales are estimated at 10,000 units at a selling price of $22.50 per unit. Variable
Costs are $14.75 and ﬁxed costs are $56,500. The tax rate is 34% and the required rate of return is
10%) For every $1 increase in the variable cost per unit the net present value will:

Accepted Answer

A)  Decrease by $20,922. 
B)  Decrease by $10,593. 
C)  Decrease by $264. 
D)  Increase by $264. 
E)  Increase by $10,593. 
A)  Decrease by $20,922. 
B)  Decrease by $10,593. 
C)  Decrease by $264. 
D)  Increase by $264. 
E)  Increase by $10,593.

Question 12

The manufacturing ﬁrm of Trevnor and Trist have a degree of operating leverage of 1.8. The ﬁrm
feels that this level makes their ﬁrm too susceptible to severe damage should the economy turn
downward. What actions can the ﬁrm take to lower their degree of operating leverage?

Accepted Answer

The ﬁrm should lower its ﬁxed costs. Thi

Question 13

The point where a project produces a rate of return equal to the required return is known as the:

Accepted Answer

A)  Point of zero operating leverage. 
B)  Cash break-even point. 
C)  Accounting break-even point. 
D)  Financial break-even point. 
E)  Internal break-even point. 
A)  Point of zero operating leverage. 
B)  Cash break-even point. 
C)  Accounting break-even point. 
D)  Financial break-even point. 
E)  Internal break-even point.

Question 14

What is the accounting break-even point? Price = $100 per unit; variable cost = $24 per unit; ﬁxed cost = $40,000 per year; depreciation = $10,000 per year. Assume a discount rate of 10%, project
Initial outlay of $100,000, project life of 10 years, and ignore taxes.

Accepted Answer

A)  527 units 
B)  624 units 
C)  658 units 
D)  925 units 
E)  1,130 units 
A)  527 units 
B)  624 units 
C)  658 units 
D)  925 units 
E)  1,130 units

Question 15

Magellen Industries is analyzing a new project. The data they have gathered to date is as follows:   Initial requirement for equipment: $120,000 Depreciation: Straight-line to zero over the four-year life of the project with no salvage value.
Required rate of return: 15%
Marginal tax rate: 35%
What is the net income under the worst-case scenario?

Accepted Answer

A)  -$11,575 
B)  -$7,524 
C)  $1,316 
D)  $4,051 
E)  $7,524 
A)  -$11,575 
B)  -$7,524 
C)  $1,316 
D)  $4,051 
E)  $7,524

Question 16

An analysis which combines scenario analysis with sensitivity analysis is called _____ analysis.

Accepted Answer

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

Question 17

A project that has an IRR equal to ______ just breaks even on an accounting basis.

Accepted Answer

A)  Its required return. 
B)  Its AAR. 
C)  0 % 
D)  100 % 
E)  -100 % 
A)  Its required return. 
B)  Its AAR. 
C)  0 % 
D)  100 % 
E)  -100 %

Question 18

Which one of the following costs is most likely a variable cost?

Accepted Answer

A)  Rent paid on an oﬃce building. 
B)  Cost of an equipment lease. 
C)  Cost of cotton used to produce a shirt. 
D)  Cost of a computer to process payroll checks. 
E)  Salary paid to the chief ﬁnancial oﬃcer. 
A)  Rent paid on an oﬃce building. 
B)  Cost of an equipment lease. 
C)  Cost of cotton used to produce a shirt. 
D)  Cost of a computer to process payroll checks. 
E)  Salary paid to the chief ﬁnancial oﬃcer.

Question 19

A project that just breaks even on a cash basis has a discounted payback period equal to its life.

Accepted Answer

A) True 
 B)False

Question 20

A project that just breaks even on an accounting basis _________________.

Accepted Answer

A)  Does not pay back. 
B)  Will exactly pay back by the end of the project. 
C)  Will pay back prior to the end of the project. 
D)  Will break even on a ﬁnancial basis as well. 
E)  Will break even on a cash basis as well. 
A)  Does not pay back. 
B)  Will exactly pay back by the end of the project. 
C)  Will pay back prior to the end of the project. 
D)  Will break even on a ﬁnancial basis as well. 
E)  Will break even on a cash basis as well.

Exam 11: Project Analysis and Evaluation

If you are contrasting the most optimistic situation to the most pessimistic situation which might be created by a project you are conducting _____ analysis.

The process in which a business allocates a certain amount of ﬁnancing for capital spending to each business unit is called:

What is the base case cash break-even point?

Provide a deﬁnition for the term cash break-even.

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 ﬁnancial break-even quantity?

The OCF is equal to zero in a ﬁnancial break-even calculation.

The costs that occur when the number of units produced is equal to zero are called the ____ costs.

Variable costs change with the quantity of output produced.

An analysis of what happens to NPV estimates when many variables take on many different values simultaneously is called:

The manufacturing ﬁrm of Trevnor and Trist have a degree of operating leverage of 1.8. The ﬁrm feels that this level makes their ﬁrm too susceptible to severe damage should the economy turn downward. What actions can the ﬁrm take to lower their degree of operating leverage?

The point where a project produces a rate of return equal to the required return is known as the:

What is the accounting break-even point? Price = $100 per unit; variable cost = $24 per unit; ﬁxed cost = $40,000 per year; depreciation = $10,000 per year. Assume a discount rate of 10%, project Initial outlay of $100,000, project life of 10 years, and ignore taxes.

An analysis which combines scenario analysis with sensitivity analysis is called _____ analysis.

A project that has an IRR equal to ______ just breaks even on an accounting basis.

Which one of the following costs is most likely a variable cost?

A project that just breaks even on a cash basis has a discounted payback period equal to its life.

A project that just breaks even on an accounting basis _________________.

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