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?

A firm with high operating leverage is expected to:

Calculate the ratio of variable-costs-to-sales for a firm with: $3,000,000 accounting break-even revenues,$1.2 million fixed costs,and $450,000 depreciation.

Barrier Corporation is performing a sensitivity analysis on one of its product.The product currently sells for $75 per unit,with variable cost of $46 per unit and fixed costs of $100,000.Barrier currently sells 80,000 units of this product.Barrier is considering reducing its price by 10%.If prices decrease,then it is expected that units sold will increase by 8%.Calculate the change in operating income.

Which of the following appears to be the most suitable investment?

The level of sales at which project NPV is zero is referred to as the accounting break-even point.

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

Calculate the break-even level of sales,assuming: $1.4 million fixed costs,$400,000 depreciation expense,and variable costs-to-sales ratio of 65 percent.

A project that simply breaks even on an accounting basis gives you your money back but does not cover the opportunity cost of the capital tied up in the project.

A project that breaks even in accounting terms will surely have a negative NPV.

Students,and managers alike,are continually reminded to avoid negative-NPV projects.Which of the following projects may be acceptable even at a loss?

Which of the following statements is likely to be correct for a decision tree which indicates a 30 percent chance of making a $250,000 profit and a 70 percent chance of sustaining a $140,000 loss?

Decision trees display the possible outcomes associated with a series of related decisions.

The break-even level of revenues represents the point at which the firm has:

Calculate the NPV break-even level of sales for a project requiring an investment of $3,000,000 and providing as cash flows: .15 × sales less $250,000.Assume the project will generate these cash flows for 10 years and that the discount rate is 10 percent.

When the level of fixed costs is decreased,the break-even level of revenues:

Although sensitivity analysis can provide managers with keen insights,there can be problems with the reliability of the NPV revisions.Discuss potential reasons for these problems,and how these problems might be confronted.

What is the fixed-cost expenditure for a firm with a DOL of 4.5 that generates pretax profits of $1 million and has $600,000 in depreciation expense?(Enter the answer in millions)

Capital rationing may be beneficial to a firm if it:

Positive NPV projects most often occur because: