Question 1

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 2

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?

Accepted Answer

A) NPV decreases by $200.00 
B) NPV decreases by $178.57 
C) NPV decreases by $130.00 
D) NPV decreases by $113.04 Increase fixed costs by $200
Present value of $200 at 12% for 1 year = $178.57. 
A) NPV decreases by $200.00 
B) NPV decreases by $178.57 
C) NPV decreases by $130.00 
D) NPV decreases by $113.04 Increase fixed costs by $200
Present value of $200 at 12% for 1 year = $178.57.

Question 3

Why is managerial flexibility important in capital budgeting?

Accepted Answer

Some projects may take on added value be

Question 4

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

Accepted Answer

A) Incurs high fixed costs of production 
B) Incurs high variable costs of production 
C) Is generating a positive NPV 
D) Has a steady degree of operating leverage 
A) Incurs high fixed costs of production 
B) Incurs high variable costs of production 
C) Is generating a positive NPV 
D) Has a steady degree of operating leverage

Question 5

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

Accepted Answer

A) Agreement on the appropriate discount rate 
B) Determine whether to finance with debt or equity 
C) Isolation of pivotal factor in project profitability 
D) Select the best capital budgeting project 
A) Agreement on the appropriate discount rate 
B) Determine whether to finance with debt or equity 
C) Isolation of pivotal factor in project profitability 
D) Select the best capital budgeting project

Question 6

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 7

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.

Accepted Answer

A) True 
 B)False

Question 8

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

Accepted Answer

A) Zero pretax profit 
B) Zero net present value 
C) Covered all opportunity costs 
D) covered all fixed and variable costs 
A) Zero pretax profit 
B) Zero net present value 
C) Covered all opportunity costs 
D) covered all fixed and variable costs

Question 9

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

Question 10

(Expansion Option) Now suppose that Hit or Miss Sports from the previous problem can expand production if the project is successful.By paying its workers overtime, it can increase production by 25,000 units; the variable cost of each ball will be higher, however, equal to $35 per unit.By how much does this option to expand production increase the NPV of the project?

Accepted Answer

The additional after-tax cash flow from

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

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?

Why is managerial flexibility important in capital budgeting?

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

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

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

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.

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

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?

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 Policy

Payout Policy

Long-Term Financial Planning

Short-Term Financial Planning

Working Capital Management

Mergers, Acquisitions, and Corporate Control

International Financial Management

Options

Risk Management

Conclusion

What We Do and Do Not Know About Finance

Filters

Exam 10: Project Analysis

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

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?

Why is managerial flexibility important in capital budgeting?

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

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

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

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.

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

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?

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 Policy

Payout Policy

Long-Term Financial Planning

Short-Term Financial Planning

Working Capital Management

Mergers, Acquisitions, and Corporate Control

International Financial Management

Options

Risk Management

Conclusion

What We Do and Do Not Know About Finance

Filters