Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

Sam is offering a new product which has a variable cost per unit of $26.08 and total ﬁxed costs of $42,714. What is the selling price of this product if the cash break-even quantity is 6,300 units?

Accepted Answer

A)  $29.47 
B)  $29.63 
C)  $32.10 
D)  $32.86 
E)  $33.07 
A)  $29.47 
B)  $29.63 
C)  $32.10 
D)  $32.86 
E)  $33.07

Question 3

The higher the contribution margin, the lower the ﬁnancial break-even point.

Accepted Answer

A) True 
 B)False

Question 4

A ﬁrm that substitutes labour for machinery and equipment is said to be capital-intensive.

Accepted Answer

A) True 
 B)False

Question 5

A project has an accounting break-even point of 1,600 units. The ﬁxed costs are $3,200 and the depreciation expense is $200. The projected variable cost per unit is $20.50. What is the projected
Sales price?

Accepted Answer

A)  $9.65 
B)  $14.75 
C)  $18.35 
D)  $20.50 
E)  $22.63 
A)  $9.65 
B)  $14.75 
C)  $18.35 
D)  $20.50 
E)  $22.63

Question 6

Variable 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 7

Costs that result from a small change in output are called ___________.

Accepted Answer

A)  Fixed costs. 
B)  Marginal costs. 
C)  Average costs. 
D)  Incremental costs. 
E)  Product costs. 
A)  Fixed costs. 
B)  Marginal costs. 
C)  Average costs. 
D)  Incremental costs. 
E)  Product costs.

Question 8

Simulation analysis is based on assigning a _____ and analyzing the results.

Accepted Answer

A)  Narrow range of values to a single variable. 
B)  Narrow range of values to multiple variables simultaneously. 
C)  Wide range of values to a single variable. 
D)  Wide range of values to multiple variables simultaneously. 
E)  Single value to each of the variables. 
A)  Narrow range of values to a single variable. 
B)  Narrow range of values to multiple variables simultaneously. 
C)  Wide range of values to a single variable. 
D)  Wide range of values to multiple variables simultaneously. 
E)  Single value to each of the variables.

Question 9

The base case values used in scenario analysis are the ones considered the most:

Accepted Answer

A)  Optimistic. 
B)  Desired by management. 
C)  Pessimistic. 
D)  Conducive to creating a positive net present value. 
E)  Likely to occur. 
A)  Optimistic. 
B)  Desired by management. 
C)  Pessimistic. 
D)  Conducive to creating a positive net present value. 
E)  Likely to occur.

Question 10

At the accounting break-even level of sales, the operating cash ﬂow is equal to:

Accepted Answer

A)  The net present value. 
B)  Fixed costs plus depreciation. 
C)  The contribution margin times the quantity produced. 
D)  Fixed costs plus depreciation divided by the contribution margin. 
E)  The depreciation expense. 
A)  The net present value. 
B)  Fixed costs plus depreciation. 
C)  The contribution margin times the quantity produced. 
D)  Fixed costs plus depreciation divided by the contribution margin. 
E)  The depreciation expense.

Question 11

The best case scenario analysis is based on the _____ expected sales quantity, the _____ expected sales price, and the _____ expected costs per unit.

Accepted Answer

A)  Highest; highest; highest. 
B)  Highest; highest; lowest. 
C)  Highest; lowest; lowest. 
D)  Lowest; lowest; highest. 
E)  Lowest; lowest; lowest. 
A)  Highest; highest; highest. 
B)  Highest; highest; lowest. 
C)  Highest; lowest; lowest. 
D)  Lowest; lowest; highest. 
E)  Lowest; lowest; lowest.

Question 12

Which of the following statements regarding operating leverage is correct?

Accepted Answer

A)  All else the same, ﬁrms with high operating leverage have higher total ﬁxed costs. 
B)  It is generally easier to decrease operating leverage than it is to increase it. 
C)  All else the same, operating leverage will rise as output increases. 
D)  In order to calculate the degree of operating leverage all that is needed are variable costs and operating cash ﬂows. 
E)  All else the same, the degree of operating leverage rises as the price per unit is increased. 
A)  All else the same, ﬁrms with high operating leverage have higher total ﬁxed costs. 
B)  It is generally easier to decrease operating leverage than it is to increase it. 
C)  All else the same, operating leverage will rise as output increases. 
D)  In order to calculate the degree of operating leverage all that is needed are variable costs and operating cash ﬂows. 
E)  All else the same, the degree of operating leverage rises as the price per unit is increased.

Question 13

Which one of the following occurs at the accounting break-even level of sales?

Accepted Answer

A)  The operating cash ﬂow is equal to zero. 
B)  The net present value is positive. 
C)  The project never pays back. 
D)  The operating cash ﬂow is equal to depreciation. 
E)  The net present value is equal to zero. 
A)  The operating cash ﬂow is equal to zero. 
B)  The net present value is positive. 
C)  The project never pays back. 
D)  The operating cash ﬂow is equal to depreciation. 
E)  The net present value is equal to zero.

Question 14

You have put together a set of cash ﬂow forecasts for a project and have found, on your ﬁrst
calculation, that the NPV is positive. You should use scenario or sensitivity analysis to investigate
the project in greater detail.

Accepted Answer

A) True 
 B)False

Question 15

Provide a deﬁnition for the term simulation analysis.

Accepted Answer

A combination of sce

Question 16

A project has earnings before interest and taxes of $6,500, ﬁxed costs of $40,000, a selling price of $12 a unit, and a sales quantity of 10,000 units. Depreciation is $8,500. What is the variable cost per
Unit?

Accepted Answer

A)  $6.25 
B)  $6.50 
C)  $6.75 
D)  $7.00 
E)  $7.25 
A)  $6.25 
B)  $6.50 
C)  $6.75 
D)  $7.00 
E)  $7.25

Question 17

Find the accounting break-even point given the following information: Price = $50 per unit; variable cost = $35 per unit; annual ﬁxed costs = $50,000; depreciation = $10,000.

Accepted Answer

A)  1,160 units 
B)  2,298 units 
C)  3,333 units 
D)  3,429 units 
E)  4,000 units 
A)  1,160 units 
B)  2,298 units 
C)  3,333 units 
D)  3,429 units 
E)  4,000 units

Question 18

All else constant, as the variable cost per unit increases, the:

Accepted Answer

A)  Contribution margin decreases. 
B)  Sensitivity to ﬁxed costs decreases. 
C)  Degree of operating leverage decreases. 
D)  Operating cash ﬂow increases. 
E)  Net proﬁt increases. 
A)  Contribution margin decreases. 
B)  Sensitivity to ﬁxed costs decreases. 
C)  Degree of operating leverage decreases. 
D)  Operating cash ﬂow increases. 
E)  Net proﬁt increases.

Question 19

A project has an accounting break-even point of 2,000 units. The ﬁxed costs are $4,200 and the depreciation expense is $400. The projected variable cost per unit is $23.10. What is the projected
Sales price?

Accepted Answer

A)  $20.80 
B)  $21.00 
C)  $21.20 
D)  $25.40 
E)  $25.60 
A)  $20.80 
B)  $21.00 
C)  $21.20 
D)  $25.40 
E)  $25.60

Question 20

Which one of the following statements is true concerning break-even points?

Accepted Answer

A)  The cash break-even quantity is equal to (FC + 
D) /(P - v). 
B)  At the accounting break-even point, a project never pays back the initial investment. 
C)  The ﬁnancial break-even point is generally higher than the accounting break-even point. 
D)  The IRR is just equal to the required return at the cash break-even point. 
E)  The ﬁnancial manager is more interested in the cash break-even point than in the ﬁnancial or accounting break-even points. 
A)  The cash break-even quantity is equal to (FC + 
D) /(P - v). 
B)  At the accounting break-even point, a project never pays back the initial investment. 
C)  The ﬁnancial break-even point is generally higher than the accounting break-even point. 
D)  The IRR is just equal to the required return at the cash break-even point. 
E)  The ﬁnancial manager is more interested in the cash break-even point than in the ﬁnancial or accounting break-even points.

Exam 11: Project Analysis and Evaluation

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

Sam is offering a new product which has a variable cost per unit of $26.08 and total ﬁxed costs of $42,714. What is the selling price of this product if the cash break-even quantity is 6,300 units?

The higher the contribution margin, the lower the ﬁnancial break-even point.

A ﬁrm that substitutes labour for machinery and equipment is said to be capital-intensive.

A project has an accounting break-even point of 1,600 units. The ﬁxed costs are $3,200 and the depreciation expense is $200. The projected variable cost per unit is $20.50. What is the projected Sales price?

Variable costs _________________________.

Costs that result from a small change in output are called ___________.

Simulation analysis is based on assigning a _____ and analyzing the results.

The base case values used in scenario analysis are the ones considered the most:

At the accounting break-even level of sales, the operating cash ﬂow is equal to:

The best case scenario analysis is based on the _____ expected sales quantity, the _____ expected sales price, and the _____ expected costs per unit.

Which of the following statements regarding operating leverage is correct?

Which one of the following occurs at the accounting break-even level of sales?

You have put together a set of cash ﬂow forecasts for a project and have found, on your ﬁrst calculation, that the NPV is positive. You should use scenario or sensitivity analysis to investigate the project in greater detail.

Provide a deﬁnition for the term simulation analysis.

A project has earnings before interest and taxes of $6,500, ﬁxed costs of $40,000, a selling price of $12 a unit, and a sales quantity of 10,000 units. Depreciation is $8,500. What is the variable cost per Unit?

Find the accounting break-even point given the following information: Price = $50 per unit; variable cost = $35 per unit; annual ﬁxed costs = $50,000; depreciation = $10,000.

All else constant, as the variable cost per unit increases, the:

A project has an accounting break-even point of 2,000 units. The ﬁxed costs are $4,200 and the depreciation expense is $400. The projected variable cost per unit is $23.10. What is the projected Sales price?

Which one of the following statements is true concerning break-even points?

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

The best case scenario analysis is based on the ___ expected sales quantity, the _ expected sales price, and the ___ expected costs per unit.