Question 1

Break‑even analysis requires knowing the relationship​

Accepted Answer

A)  ​between sales and earnings 
B)  ​between sales and total costs 
C)  ​between total revenues and fixed costs 
D)  ​between sales and assets 
A)  ​between sales and earnings 
B)  ​between sales and total costs 
C)  ​between total revenues and fixed costs 
D)  ​between sales and assets B

Question 2

​You want to start a firm whose output you believe you can sell for $25 per unit. The operation will require fixed costs of $10,000, and the variable costs are expected to be $18 a unit. What will be the break-even level of output?

Accepted Answer

​Break‑even level of output:
$100,000/($25 ‑ 18) = 14,286 units

Question 3

A union contract suggests that labor costs may be​

Accepted Answer

A)  ​variable 
B)  ​fixed 
C)  a non‑cash expense​ 
D)  undetermined​ 
A)  ​variable 
B)  ​fixed 
C)  a non‑cash expense​ 
D)  undetermined​ B

Question 4

If an investment costs $100,000 and annually generates $25,000, the payback period is 4 years.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following $1,000 investments would the payback method select?
Cash flows: $$\begin{array} { c r r c } 
\text { Year } & A & B & C \
1 & \$ 200 & \$ 250 & \$ 400 \
2 & 250 & 250 & 350 \
3 & 300 & 250 & 200 \
4 & 350 & 250 & 150 \
5 & 400 & 250 & 100
\end{array}$$

Accepted Answer

Payback for A is approximately

Question 6

If variable costs exceed fixed costs, the firm must be operating at a loss.​

Accepted Answer

A) True 
 B)False

Question 7

Break even analysis is used to determine the best level of output.

Accepted Answer

A) True 
 B)False

Question 8

Fixed costs​

Accepted Answer

A)  ​are greater than variable costs 
B)  ​are paid before variable costs 
C)  ​do not change with the level of output 
D)  do not change with the size of the firm​ 
A)  ​are greater than variable costs 
B)  ​are paid before variable costs 
C)  ​do not change with the level of output 
D)  do not change with the size of the firm​

Question 9

The price of a product is $1 a unit. A firm can produce this good with variable costs of $0.50 per unit and total fixed costs of $100.​
a. What is the break‑even level of output?
b. What is the break‑even level of output if fixed costs increase to $180 and variable costs decline to $0.40 per unit?

Accepted Answer

a. break-even level of output:

Question 10

Total revenue equals price times quantity.​

Accepted Answer

A) True 
 B)False

Question 11

The payback period is not concerned with​

Accepted Answer

A)  ​earnings 
B)  cash inflows​ 
C)  the cost of an investment​ 
D)  selecting investments​ 
A)  ​earnings 
B)  cash inflows​ 
C)  the cost of an investment​ 
D)  selecting investments​

Question 12

A major weakness with the payback method is it failure to​

Accepted Answer

A)  ​consider the cost of an investment 
B)  consider an investment's cash inflows​ 
C)  employ the firm's cost of funds (capital)​ 
D)  rank investments​ 
A)  ​consider the cost of an investment 
B)  consider an investment's cash inflows​ 
C)  employ the firm's cost of funds (capital)​ 
D)  rank investments​

Question 13

If a firm has fixed costs of $3,000, the price of its product is $4.00, and the per unit variable costs are $1.00, the break even level of output is 3,000 units.

Accepted Answer

A) True 
 B)False

Question 14

Break‑even analysis does not indicate the output that maximizes the value of the firm.​

Accepted Answer

A) True 
 B)False

Question 15

The faster an investment recoups it initial costs is an argument to make the investment according to the payback method of selecting investments.​

Accepted Answer

A) True 
 B)False

Question 16

One use for break even analysis is to examine the effect of substituting fixed for variable costs.

Accepted Answer

A) True 
 B)False

Question 17

Straight‑line break‑even analysis implies that​
1) fixed costs eventually decline
2) per unit variable cost may initially fall but start to increase with further increases in output
3) per unit variable costs are constant

Accepted Answer

A) ​1 and 2 
B) 1 and 3​ 
C) 2 and 3​ 
D) ​only 3 
A) ​1 and 2 
B) 1 and 3​ 
C) 2 and 3​ 
D) ​only 3

Question 18

Higher interest rates imply faster payback periods.

Accepted Answer

A) True 
 B)False

Question 19

To determine the break even level of output, management must know​
1) fixed costs of operation
2) per unit variable costs of output
3) total sales

Accepted Answer

A) ​1 and 2 
B) 1 and 3​ 
C) 2 and 3​ 
D) ​all three 
A) ​1 and 2 
B) 1 and 3​ 
C) 2 and 3​ 
D) ​all three

Question 20

The straight-line total revenue function suggests the firm may sell additional output without having to lower the price of the product.

Accepted Answer

A) True 
 B)False

Exam 19: Break-Even Analysis and the Payback Period

Break‑even analysis requires knowing the relationship​

​You want to start a firm whose output you believe you can sell for $25 per unit. The operation will require fixed costs of $10,000, and the variable costs are expected to be $18 a unit. What will be the break-even level of output?

A union contract suggests that labor costs may be​

If an investment costs $100,000 and annually generates $25,000, the payback period is 4 years.

Which of the following $1,000 investments would the payback method select? Cash flows: Year A B C 1 \ 200 \ 250 \ 400 2 250 250 350 3 300 250 200 4 350 250 150 5 400 250 100

If variable costs exceed fixed costs, the firm must be operating at a loss.​

Break even analysis is used to determine the best level of output.

Fixed costs​

Total revenue equals price times quantity.​

The payback period is not concerned with​

A major weakness with the payback method is it failure to​

If a firm has fixed costs of $3,000, the price of its product is $4.00, and the per unit variable costs are $1.00, the break even level of output is 3,000 units.

Break‑even analysis does not indicate the output that maximizes the value of the firm.​

The faster an investment recoups it initial costs is an argument to make the investment according to the payback method of selecting investments.​

One use for break even analysis is to examine the effect of substituting fixed for variable costs.

Straight‑line break‑even analysis implies that​ 1) fixed costs eventually decline 2) per unit variable cost may initially fall but start to increase with further increases in output 3) per unit variable costs are constant

Higher interest rates imply faster payback periods.

To determine the break even level of output, management must know​ 1) fixed costs of operation 2) per unit variable costs of output 3) total sales

The straight-line total revenue function suggests the firm may sell additional output without having to lower the price of the product.

The Role of Financial Markets and Financial Intermediaries

Investment Banking

Securities Markets

The Federal Reserve

International Currency Flows

The Time Value of Money

Risk and Its Measurement

Analysis of Financial Statements

The Features of Stock

Stock Valuation

The Features of Long-Term Debt - Bonds

Bond Pricing and Yields

Preferred Stock

Convertile Securities

Investment Returns

Investment Companies

Forms of Businss and Corporate Taxation

Leverage

Cost of Capital

Capital Budgeting

Forecasting

Cash Budgeting

Management of Current Assets

Management of Short-Term Liabilities

Intermediate-Term Debt and Leasing

Options: Puts and Calls

Futures and Swaps

Filters

Break‑even analysis requires knowing the relationship

You want to start a firm whose output you believe you can sell for $25 per unit. The operation will require fixed costs of $10,000, and the variable costs are expected to be $18 a unit. What will be the break-even level of output?

A union contract suggests that labor costs may be

If variable costs exceed fixed costs, the firm must be operating at a loss.

Fixed costs

Total revenue equals price times quantity.

The payback period is not concerned with

A major weakness with the payback method is it failure to

Break‑even analysis does not indicate the output that maximizes the value of the firm.

The faster an investment recoups it initial costs is an argument to make the investment according to the payback method of selecting investments.

Straight‑line break‑even analysis implies that 1) fixed costs eventually decline 2) per unit variable cost may initially fall but start to increase with further increases in output 3) per unit variable costs are constant

To determine the break even level of output, management must know 1) fixed costs of operation 2) per unit variable costs of output 3) total sales