Question 1

What-if analysis can help identify the inputs that are most worth refining before you commit to a project.

Accepted Answer

A) True 
 B)False  True

Question 2

Beryl expects her sales to increase by 20 percent next year.If this year's sales are $500,000 and the degree of operating leverage (DOL)is 1.4,what is the expected level of operating income (EBIT)for next year if this year's EBIT is $100,000?

Accepted Answer

Next year's EBIT equals (this year's EBIT x20% x 1.4)+ this year's EBIT = ($100,000 x 20% x 1.4)+ $100,000 = $128,000

Question 3

"What-if" questions ask what will happen to a project in various circumstances.

Accepted Answer

A) True 
 B)False  True

Question 4

The difference between an NPV break-even level of sales and an accounting break-even level of sales is:

Accepted Answer

A)  the consideration of opportunity cost. 
B)  the consideration of depreciation expense. 
C)  allowing the sales level to vary in response to changes in demand. 
D)  the inclusion of income taxes. 
A)  the consideration of opportunity cost. 
B)  the consideration of depreciation expense. 
C)  allowing the sales level to vary in response to changes in demand. 
D)  the inclusion of income taxes.

Question 5

Which of the following techniques may be more appropriate to analyze projects with interrelated variables?

Accepted Answer

A)  sensitivity analysis 
B)  scenario analysis 
C)  break-even analysis 
D)  DOL analysis 
A)  sensitivity analysis 
B)  scenario analysis 
C)  break-even analysis 
D)  DOL analysis

Question 6

What happens to a firm with high operating leverage when the overall level of sales is very high?

Accepted Answer

A)  the firm has higher levels of fixed costs. 
B)  the firm will enjoy high profits. 
C)  the firm will not break even in accounting terms. 
D)  the firm will have a reduced level of fixed costs. 
A)  the firm has higher levels of fixed costs. 
B)  the firm will enjoy high profits. 
C)  the firm will not break even in accounting terms. 
D)  the firm will have a reduced level of fixed costs.

Question 7

The inputs that are most worth refining before you commit to a project are the ones that have the greatest potential to alter project NPV.

Accepted Answer

A) True 
 B)False

Question 8

Why is managerial flexibility important in capital budgeting?

Accepted Answer

Some projects may take on added value be

Question 9

The break-even level of sales represents the point where:

Accepted Answer

A)  fixed costs are covered. 
B)  variable costs are covered. 
C)  fixed costs and variable costs are covered. 
D)  fixed costs, variable costs, and depreciation are covered. 
A)  fixed costs are covered. 
B)  variable costs are covered. 
C)  fixed costs and variable costs are covered. 
D)  fixed costs, variable costs, and depreciation are covered.

Question 10

The option to abandon a project becomes more valuable as the possible outcomes become more varied.

Accepted Answer

A) True 
 B)False

Question 11

A 4 year project is estimated to produce a product with the following information: selling price = $57 per unit; variable costs are $32 per unit; fixed costs are $9,000; required return is 12%; initial investment = $18,000.Calculate the financial break-even.

Accepted Answer

A)  597 
B)  540 
C)  525 
D)  490 
A)  597 
B)  540 
C)  525 
D)  490

Question 12

Fixed costs:

Accepted Answer

A)  are a constant percentage of sales revenues. 
B)  vary with the level of depreciation expense. 
C)  are constant with changes in the level of output. 
D)  are inversely related to the level of output. 
A)  are a constant percentage of sales revenues. 
B)  vary with the level of depreciation expense. 
C)  are constant with changes in the level of output. 
D)  are inversely related to the level of output.

Question 13

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?

Accepted Answer

A)  30 percent 
B)  70 percent 
C)  80 percent 
D)  90 percent 
A)  30 percent 
B)  70 percent 
C)  80 percent 
D)  90 percent

Question 14

According to decision-tree analysis,investment projects should be discontinued when:

Accepted Answer

A)  the probability of success is less than 50 percent. 
B)  NPV is calculated to be negative. 
C)  DOL increases from previous levels. 
D)  the possibility of a failing outcome exists. 
A)  the probability of success is less than 50 percent. 
B)  NPV is calculated to be negative. 
C)  DOL increases from previous levels. 
D)  the possibility of a failing outcome exists.

Question 15

If the level of sales is less than that calculated as the NPV break-even level,then the:

Accepted Answer

A)  project will break even only in accounting terms. 
B)  project's NPV will be greater than zero but less than the opportunity cost of capital. 
C)  project will have a negative NPV. 
D)  discount rate should be reduced. 
A)  project will break even only in accounting terms. 
B)  project's NPV will be greater than zero but less than the opportunity cost of capital. 
C)  project will have a negative NPV. 
D)  discount rate should be reduced.

Question 16

Which of the following offers the most plausible scenario for a firm that maintained a constant degree of operating leverage when its level of fixed costs doubled?

Accepted Answer

A)  depreciation expense increased 
B)  variable cost percentage decreased 
C)  sales revenues declined 
D)  pretax profits decreased 
A)  depreciation expense increased 
B)  variable cost percentage decreased 
C)  sales revenues declined 
D)  pretax profits decreased

Question 17

What is the break-even level of revenues for a firm with $6 million in sales,variable costs of $3.9 million,fixed costs of $1.2 million,and depreciation of $1 million?

Accepted Answer

A)  $3,428,571 
B)  $6,100,000 
C)  $6,285,714 
D)  $6,557,377 
A)  $3,428,571 
B)  $6,100,000 
C)  $6,285,714 
D)  $6,557,377

Question 18

Scenario analysis allows managers to look at different and sometimes inconsistent combinations of variables.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following capital budgeting proposals is most likely to display a conflict of interests?

Accepted Answer

A)  the proposal with the highest NPV. 
B)  the proposal with the longest payback period. 
C)  the proposal with highest IRR and quickest payback. 
D)  the proposal to solve pollution problems. 
A)  the proposal with the highest NPV. 
B)  the proposal with the longest payback period. 
C)  the proposal with highest IRR and quickest payback. 
D)  the proposal to solve pollution problems.

Question 20

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

Accepted Answer

Percent change in pr

Exam 10: Project Analysis

What-if analysis can help identify the inputs that are most worth refining before you commit to a project.

Beryl expects her sales to increase by 20 percent next year.If this year's sales are $500,000 and the degree of operating leverage (DOL)is 1.4,what is the expected level of operating income (EBIT)for next year if this year's EBIT is $100,000?

"What-if" questions ask what will happen to a project in various circumstances.

The difference between an NPV break-even level of sales and an accounting break-even level of sales is:

Which of the following techniques may be more appropriate to analyze projects with interrelated variables?

What happens to a firm with high operating leverage when the overall level of sales is very high?

The inputs that are most worth refining before you commit to a project are the ones that have the greatest potential to alter project NPV.

Why is managerial flexibility important in capital budgeting?

The break-even level of sales represents the point where:

The option to abandon a project becomes more valuable as the possible outcomes become more varied.

A 4 year project is estimated to produce a product with the following information: selling price = $57 per unit; variable costs are $32 per unit; fixed costs are $9,000; required return is 12%; initial investment = $18,000.Calculate the financial break-even.

Fixed costs:

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?

According to decision-tree analysis,investment projects should be discontinued when:

If the level of sales is less than that calculated as the NPV break-even level,then the:

Which of the following offers the most plausible scenario for a firm that maintained a constant degree of operating leverage when its level of fixed costs doubled?

What is the break-even level of revenues for a firm with $6 million in sales,variable costs of $3.9 million,fixed costs of $1.2 million,and depreciation of $1 million?

Scenario analysis allows managers to look at different and sometimes inconsistent combinations of variables.

Which of the following capital budgeting proposals is most likely to display a conflict of interests?

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

Goals and Governance of the Firm

Financial Markets and Institutions

Accounting and Finance

Measuring Corporate Performance

The Time Value of Money

Valuing Bonds

Valuing Stocks

Net Present Value and Other Investment Criteria

Using Discounted Cash Flow Analysis to Make Investment Decisions

Introduction to Risk, Return, and the Opportunity Cost of Capital

Risk, Return, and Capital Budgeting

The Weighted-Average Cost of Capital and Company Valuation

Introduction to Corporate Financing and Governance

Venture Capital, IPOs, and Seasoned Offerings

Debt and Payout Policy

Leasing

Payout Policy

Long-Term Financial Planning

Short-Term Financial Planning

Cash and Inventory Management

Credit Management and Collection

Mergers, Acquisitions, and Corporate Control

International Financial Management

Options

Risk Management

Filters