Exam 10: Project Analysis

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

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

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

The option for a firm to expand future production has value because:

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.

Firms that lack competitive advantages will:

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

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

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

If sensitivity analysis indicates none of the individual variables will cause a negative NPV under pessimistic conditions, 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?

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

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.

What is the degree of operating leverage of this project?

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

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?

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

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?

What level of management is responsible for originating capital budgeting proposals?

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