Exam 10: Project Analysis

Approximately how much was paid to invest in a project that has an NPV break-even level of sales of $5 million, cash flows determined by:.1 × sales - $300,000, a six-year life, and an 8 percent discount rate? (use the values in dollar)

Seivewright Cobbler, Inc.can produce shoes that will be sold for $160 each.Non-depreciated fixed costs are $2,000 per year and variable costs are $120 per unit.If the project requires an initial investment of $6,000 and is expected to last for 5 years and the firm pays no taxes, what are the accounting and NPV break-even levels of sales?

Using a computer model to repeatedly vary the combination of project variables in order to compare NPVs is called:

Briefly describe several factors that increase the difficulty in selecting appropriate capital budgeting proposals.

The greater the ratio of variable costs to sales, the:

What is the maximum percentage of variable costs in relation to sales that a firm could experience and still break even with $5 million revenue, $1 million fixed costs, and $500,000 depreciation? (use the values in dollar)

The accounting break-even point for a firm is a function of its:

The opportunity to abandon a project loses some of its value when:

What is the NPV break-even level of sales for a project costing $4,000,000 and generating cash flows according to.30 × sales - $450,000? Assume the project will last 10 years and requires a discount rate of 12 percent.

Forecasting inconsistencies can be minimized by:

What is the level of profits for a firm in which DOL = 5 and fixed costs including depreciation = $300,000?

In a graphic depiction of accounting break-even analysis, the larger the slope of the total cost line, the:

Confirm that the percentage change in profits equals DOL times the percentage change in sales.

Calculate the accounting break-even point for the following firm: revenues of $700,000, $100,000 fixed costs, $75,000 depreciation, 60 percent variable costs, and a 35 percent tax rate.What happens to the break-even if a trade-off is made which increases fixed costs by $30,000 and decreases variable costs to 55 percent of sales?

Fixed costs including depreciation have increased at Leverage, Inc.from $4 million to $6 million in an effort to reduce variable costs.What must the new variable-cost percentage be to leave break-even at $20 million?

A video rental store will cost $650,000 to open.Assuming annual sales of $1 million, variable costs of 35 percent, fixed costs of $300,000, depreciation of $100,000, and a tax rate of 35 percent, calculate the NPV of the project over a 10-year horizon (no inflation or salvage value assumed) with a 12 percent cost of capital.Conduct a sensitivity analysis by allowing investment, sales, variable costs, and fixed costs to vary by plus/minus 10 percent from their original estimates.Which variable appears to affect profitability the most? What does the sensitivity analysis suggest the investor do?

What are two of the factors that will commonly affect the abandonment value of a project? What criterion should determine abandonment?

One characteristic of scenario analysis is that:

While sensitivity analysis is forward-looking, scenario analysis attempts to reconstruct and analyze the past.

If a firm tax rate is 40 percent what would your answer be? Now taxes are 40 percent of profits.Accounting break-even is unchanged, since taxes are zero when profits = 0.