Exam 10: Project Analysis

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 accounting break-even.

What happens to the NPV of a one-year project if fixed costs are increased from $400 to $600,the firm is not profitable,has a 15% tax rate and employs a 12% cost of capital?

Harris Computer store has sales of $225,000,fixed costs of $40,000,and variable cost of $100,000.Calculate the degree of operating leverage (DOL)for this firm.

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?

When management selects production technologies that include a high proportion of fixed costs,they:

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

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

Selecting the lowest cost technology:

What effect will a reduction in the cost of capital have on the accounting break-even level of revenues?

A manufacturer contemplates a change in technology that would reduce fixed costs from $800,000 to $600,000,and reduce depreciation expense from $125,000 to $100,000.However,the ratio of variable costs to sales will increase from 68 percent to 80 percent.What will happen to break-even level of revenues?

The accounting break-even point is that level of sales where:

Ajax Corporation is performing a sensitivity analysis on one of its product.The product currently sells for $210 per unit,with variable cost of $90 per unit and fixed costs of $400,000.Ajax currently sells 12,000 units of this product.Ajax is considering raising its price by 15%.If prices increase,then it is expected that units sold will decrease by 10%.Calculate the change in operating income.

Which of the following is least likely to be responsible for a regional manager's conflict of interest in promoting a capital budgeting proposal?

Which of the following variables would you suspect to be least significant in a sensitivity analysis of a fast-food establishment?

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

A firm with 60 percent of sales going to variable costs,$1.5 million fixed costs,and $500,000 depreciation would show what accounting profit with sales of $3 million? Ignore taxes.

Forecasting inconsistencies can be minimized by:

One characteristic of scenario analysis is that:

Operating leverage increases with fixed cost.

What percentage change in sales occurs if profits increase by 3 percent when the firm's degree of operating leverage is 4.5?