Exam 11: Project Analysis and Evaluation

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 accept the project because you are certain to increase shareholder wealth.

Jasper United is a young firm that expects to see their sales quantity increase exponentially over the next ten years due to their product innovation. Given this, management has decided that the firm should invest heavily in equipment and facilities capable of producing large quantities of output At a low marginal cost. This decision will result in relatively _____ costs per unit and _____ costs Per unit.

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 sales revenue under the worst case scenario?

Degree of operating leverage (DOL) is equal to the percentage change in OCF divided by the percentage change in sales quantity.

Which of the following statements about simulation analysis is correct?

The key inputs into a discounted cash flow analysis are the projected:

Last month you introduced a new product to the market. Consumer demand has been overwhelming and appears that strong demand will exist over the long-term. Given this situation, Management should consider the option to:

A project has an initial cost of $94,000 for equipment, which will be depreciated straight-line to zero over the five-year life of the project. There is no salvage value on the equipment. No working Capital is required. Sales are estimated at 6,000 units at a selling price of $31.40 per unit. Variable Costs are $22.80 and fixed costs are $41,600. The required rate of return is 14% and the marginal Tax rate is 35%. If the sales quantity increases by 100 units, the net present value will increase by:

What is the cash 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.

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 financial break-even quantity?

Which one of the following is a fixed cost in the short-run?

The degree of operating leverage is defined as the percentage change in _____ relative to the percentage change in _____.

To determine the degree to which the projected net present value of a project is dependent upon a single variable you should conduct _____ analysis.

At the cash break-even point, a multi-year project has a net present value that is equal to:

The higher the degree of operating leverage, the higher the break-even point, regardless of how it's measured.

A project has a contribution margin of $3.20, projected fixed costs of $9,400, projected variable costs per unit of $7.25, and a projected financial break-even point of 6,100 units. What is the Operating cash flow at this level of output?

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

Which of the following best describe the term sensitivity analysis.

What are the earnings before interest and taxes?

TR Industries manage a product with a 2.6 degree of operating leverage. Sales of the product are expected to decline by 8 percent next year as an economic downturn is anticipated. What is the Expected change in the operating cash flow for this product for next year?