Question 1

The opportunity to abandon a project loses some of its value when:

Accepted Answer

A)  fixed costs are high. 
B)  markets are extremely competitive. 
C)  the future is relatively certain. 
D) secondary markets exist and are active. 
A)  fixed costs are high. 
B)  markets are extremely competitive. 
C)  the future is relatively certain. 
D) secondary markets exist and are active.

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 35% 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. 
A)  NPV decreases by $200.00. 
B)  NPV decreases by $178.57. 
C)  NPV decreases by $130.00. 
D) NPV decreases by $113.04.

Question 3

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

Accepted Answer

A)  sales revenue equals variable costs. 
B)  sales revenue equals variable plus fixed costs. 
C)  the operating cash flow equals zero. 
D) EBIT equals zero. 
A)  sales revenue equals variable costs. 
B)  sales revenue equals variable plus fixed costs. 
C)  the operating cash flow equals zero. 
D) EBIT equals zero.

Question 4

Sensitivity analysis evaluates projects by:

Accepted Answer

A)  forecasting changes in interest rates that would increase financing costs. 
B)  recording profitability changes while changing one variable at a time. 
C)  ensuring that the project sponsor has the proper incentives. 
D) testing for interrelated variables. 
A)  forecasting changes in interest rates that would increase financing costs. 
B)  recording profitability changes while changing one variable at a time. 
C)  ensuring that the project sponsor has the proper incentives. 
D) testing for interrelated variables.

Question 5

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

Accepted Answer

A)  future production will be profitable. 
B)  the option requires no investment today. 
C)  the future holds uncertainty. 
D) today's production costs are lower than in the future. 
A)  future production will be profitable. 
B)  the option requires no investment today. 
C)  the future holds uncertainty. 
D) today's production costs are lower than in the future.

Question 6

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 7

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

Accepted Answer

A)  fixed costs; sales 
B)  profits; fixed costs 
C)  profits; sales 
D) operating leverage; fixed costs 
A)  fixed costs; sales 
B)  profits; fixed costs 
C)  profits; sales 
D) operating leverage; fixed costs

Question 8

What-if analysis is not crucial to capital budgeting.

Accepted Answer

A) True 
 B)False

Question 9

The purpose of sensitivity analysis is to show:

Accepted Answer

A)  the optimal level of capital expenditures. 
B)  how price changes affect break-even volume. 
C)  seasonal variation in product demand. 
D) how variables in a project affect profitability. 
A)  the optimal level of capital expenditures. 
B)  how price changes affect break-even volume. 
C)  seasonal variation in product demand. 
D) how variables in a project affect profitability.

Question 10

The strategic planning portion of the capital budgeting process is essentially a "bottom-up" process.

Accepted Answer

A) True 
 B)False

Question 11

What are some of the factors that will commonly affect the abandonment value of a project? When should abandonment be considered?

Accepted Answer

The primary factors affecting the decisi

Question 12

Which one of the following sets of conditions represents the more suitable investment?

Accepted Answer

A)  Total revenues cover fixed and variable costs. 
B)  An investment breaks even in an accounting sense. 
C)  An investment breaks even in an economic sense. 
D) Total revenues exceed the costs of goods sold. 
A)  Total revenues cover fixed and variable costs. 
B)  An investment breaks even in an accounting sense. 
C)  An investment breaks even in an economic sense. 
D) Total revenues exceed the costs of goods sold.

Question 13

The accounting 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 the fixed and variable costs but not the depreciation. 
A)  zero pretax profit. 
B)  zero net present value. 
C)  covered all opportunity costs. 
D) covered the fixed and variable costs but not the depreciation.

Question 14

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

Accepted Answer

A)  $60,000 
B)  $75,000 
C)  $1,200,000 
D) $1,500,000 
A)  $60,000 
B)  $75,000 
C)  $1,200,000 
D) $1,500,000

Question 15

What is the economic break-even level of sales for a project costing $4,000,000 and generating annual cash flows equal to 0.30 × sales - $450,000? Assume the project will last 10 years and require a discount rate of 12%.

Accepted Answer

A)  $2,093,654 
B)  $2,359,047 
C)  $3,859,789 
D) $13,783,333 
A)  $2,093,654 
B)  $2,359,047 
C)  $3,859,789 
D) $13,783,333

Question 16

The capital budget should be consistent with the firm's:

Accepted Answer

A)  historical growth in sales. 
B)  strategic plans. 
C)  current level of debt. 
D) dividend policy. 
A)  historical growth in sales. 
B)  strategic plans. 
C)  current level of debt. 
D) dividend policy.

The opportunity to abandon a project loses some of its value when:

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 35% tax rate, and employs a 12% cost of capital?

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

Sensitivity analysis evaluates projects by:

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

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 DOL measures the percentage change in __ given a percentage change in _.

What-if analysis is not crucial to capital budgeting.

The purpose of sensitivity analysis is to show:

The strategic planning portion of the capital budgeting process is essentially a "bottom-up" process.

What are some of the factors that will commonly affect the abandonment value of a project? When should abandonment be considered?

Which one of the following sets of conditions represents the more suitable investment?

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

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

What is the economic break-even level of sales for a project costing $4,000,000 and generating annual cash flows equal to 0.30 × sales - $450,000? Assume the project will last 10 years and require a discount rate of 12%.

The capital budget should be consistent with the firm's:

Goals and Governance of the Corporation

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

How Corporations Raise Venture Capital and Issue Securities

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

Filters

Exam 10: Project Analysis

The opportunity to abandon a project loses some of its value when:

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 35% tax rate, and employs a 12% cost of capital?

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

Sensitivity analysis evaluates projects by:

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

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

What-if analysis is not crucial to capital budgeting.

The purpose of sensitivity analysis is to show:

The strategic planning portion of the capital budgeting process is essentially a "bottom-up" process.

What are some of the factors that will commonly affect the abandonment value of a project? When should abandonment be considered?

Which one of the following sets of conditions represents the more suitable investment?

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

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

What is the economic break-even level of sales for a project costing $4,000,000 and generating annual cash flows equal to 0.30 × sales - $450,000? Assume the project will last 10 years and require a discount rate of 12%.

The capital budget should be consistent with the firm's:

Goals and Governance of the Corporation

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

How Corporations Raise Venture Capital and Issue Securities

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

Filters

The DOL measures the percentage change in __ given a percentage change in _.