Exam 10: Project Analysis

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.

What happens to the NPV of a one-year project if fixed costs are increased from $400 to $600,the firm is profitable,has a 15 percent tax rate and employs a 12 percent cost of capital?

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. To find NPV break-even,recalculate cash flow. CF = (1 - T)(Revenue - Cash Expenses)+ T × Depreciation = .60 (.25 × Sales - 2000)+ .40 × 600 = .15 × Sales - 960

The opportunity to alter production technology gives managers:

The degree of operating leverage shows the relationship between sales and pretax profits.

What is the effect on break-even level of revenues for each dollar of increase in fixed costs plus depreciation for a firm with 70 percent variable costs?

An 8 year project is estimated to produce a product with the following information: selling price = $80 per unit; variable costs are $65 per unit; fixed costs are $20,000; required return is 10%; initial investment = $200,000.Calculate the accounting break-even.

The NPV break-even level of sales will be higher than the accounting break-even level.

Describe decision trees,including how they can be useful and how they can be risky.

If pretax profits decrease by 13.8 percent when the DOL is 3.8,then the decrease in sales is:

Break-even revenues on an accounting basis typically indicate a:

Discuss the basic difference between an accounting break-even point analysis and an NPV break-even analysis.Which would you consider more reliable? Which would you consider more common? Why?

Which of the following statements is correct concerning sensitivity analysis?

Competitive advantage is an important element of many successful capital budgeting proposals.

The DOL measures the percentage change in ______,given a percentage change in _____.

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

The opportunity to abandon a project inexpensively is likely to have more value when the product:

Sensitivity analysis takes into consideration the interrelationship of variables.

Which of the following appears to be a more likely result from using sensitivity analysis?

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? The initial investment will be depreciated straight-line over 10 years to a final value of zero,and the discount rate is 10 percent.