Question 1

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

Accepted Answer

A)  net cash flows and depreciation expense. 
B)  fixed costs and profit on each sale. 
C)  variable costs and its tax liability. 
D)  revenues and fixed costs. 
A)  net cash flows and depreciation expense. 
B)  fixed costs and profit on each sale. 
C)  variable costs and its tax liability. 
D)  revenues and fixed costs. B

Question 2

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

Accepted Answer

A)  0.28% 
B)  2.75% 
C)  3.63% 
D)  10.00% 
A)  0.28% 
B)  2.75% 
C)  3.63% 
D)  10.00% C

Question 3

The purpose of sensitivity analysis is to show:

Accepted Answer

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

Question 4

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

Accepted Answer

A decision tree is the diagram represent

Question 5

Positive NPV projects exist because:

Accepted Answer

A)  analysts select sufficiently low discount rates. 
B)  most projects are unique and innovative. 
C)  cash-flow projections are extended into the future. 
D)  firms hold competitive advantages. 
A)  analysts select sufficiently low discount rates. 
B)  most projects are unique and innovative. 
C)  cash-flow projections are extended into the future. 
D)  firms hold competitive advantages.

Question 6

Calculate the accounting break-even point for the following firm: revenues of $700,000,$100,000 fixed costs,$75,000 depreciation,60% variable costs,and a 35% tax rate.What happens to the break-even if a trade-off is made that increases fixed costs by $30,000 and decreases variable costs to 55% of sales?

Accepted Answer

The answer of Calculate the accounting break-even point for the...

Question 7

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

Accepted Answer

A)  Sensitivity analysis 
B)  Scenario analysis 
C)  Break-even analysis 
D)  DOL analysis 
A)  Sensitivity analysis 
B)  Scenario analysis 
C)  Break-even analysis 
D)  DOL analysis

Question 8

(Abandonment Option)Hit or Miss Sports is introducing a new product this year.If its see-at-night soccer balls are a hit,the firm expects to be able to sell 50,000 units a year at a price of $60 each.If the new product is a bust,only 30,000 units can be sold at a price of $55.The variable cost of each ball is $30,and fixed costs are zero.The cost of the manufacturing equipment is $6 million,and the project life is estimated at 10 years.The firm will use straight-line depreciation over the 10-year life of the project.The firm's tax rate is 35% and the discount rate is 12%.
a.If each outcome is equally likely,what is expected NPV? Will the firm accept the project?
b.Suppose now that the firm can abandon the project and sell off the manufacturing equipment for $5.4 million if demand for the balls turns out to be weak.The firm will make the decision to continue or abandon after the first year of sales.Does the option to abandon change the firm's decision to accept the project?

Accepted Answer

a. @#IMG-DLM& Cash flow = [(1 * T)*(revenue - cash

Question 9

Conflicts of interest between shareholders and managers may result in the sacrifice of attractive capital budgeting proposals.

Accepted Answer

A) True 
 B)False

Question 10

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

Question 11

Recognizing that it may be in managers' best interests to be overly optimistic when proposing projects,how might firms effectively control this impulse?

Accepted Answer

A)  Employ capital rationing. 
B)  Discontinue investment proposals. 
C)  Fire managers after their first mistake. 
D)  Fund all project proposals. 
A)  Employ capital rationing. 
B)  Discontinue investment proposals. 
C)  Fire managers after their first mistake. 
D)  Fund all project proposals.

Question 12

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 13

Scenario analysis allows managers to look at different but consistent combinations of interrelated variables.

Accepted Answer

A) True 
 B)False

Question 14

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

Accepted Answer

A)  Senior management 
B)  Divisional management 
C)  Lower management 
D)  All levels of management 
A)  Senior management 
B)  Divisional management 
C)  Lower management 
D)  All levels of management

Question 15

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)  the allowance of 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)  the allowance of the sales level to vary in response to changes in demand. 
D)  the inclusion of income taxes.

Question 16

What-if analysis can help identify the inputs that are most worth refining before you commit to a project.

Accepted Answer

A) True 
 B)False

Question 17

The economic break-even point of a project can be found by:

Accepted Answer

A)  setting the discount rate equal to the DOL. 
B)  solving for the annual sales that will equate total revenue with total cost. 
C)  solving for the annual sales that will give the project an NPV of zero. 
D)  solving for the level of sales that will give the project an IRR of zero. 
A)  setting the discount rate equal to the DOL. 
B)  solving for the annual sales that will equate total revenue with total cost. 
C)  solving for the annual sales that will give the project an NPV of zero. 
D)  solving for the level of sales that will give the project an IRR of zero.

Question 18

Calculate the ratio of variable costs to sales for a firm with $3,000,000 accounting break-even revenues,$1.2 million fixed costs,and $450,000 depreciation.

Accepted Answer

A)  40% 
B)  45% 
C)  55% 
D)  60% 
A)  40% 
B)  45% 
C)  55% 
D)  60%

Question 19

What is the accounting 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?

Accepted Answer

A)  $3,428,571 
B)  $6,100,000 
C)  $6,285,714 
D)  $6,557,377 
A)  $3,428,571 
B)  $6,100,000 
C)  $6,285,714 
D)  $6,557,377

Question 20

Which of the following appears to be a more suitable investment?

Accepted Answer

A)  Revenues cover fixed and variable costs 
B)  Investment breaks even in an accounting sense 
C)  Investment breaks even in an economic sense 
D)  Revenues exceed cost of goods sold 
A)  Revenues cover fixed and variable costs 
B)  Investment breaks even in an accounting sense 
C)  Investment breaks even in an economic sense 
D)  Revenues exceed cost of goods sold

Exam 10: Project Analysis

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

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

The purpose of sensitivity analysis is to show:

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

Positive NPV projects exist because:

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

Conflicts of interest between shareholders and managers may result in the sacrifice of attractive capital budgeting proposals.

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

Recognizing that it may be in managers' best interests to be overly optimistic when proposing projects,how might firms effectively control this impulse?

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

Scenario analysis allows managers to look at different but consistent combinations of interrelated variables.

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

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

What-if analysis can help identify the inputs that are most worth refining before you commit to a project.

The economic break-even point of a project can be found by:

Calculate the ratio of variable costs to sales for a firm with $3,000,000 accounting break-even revenues,$1.2 million fixed costs,and $450,000 depreciation.

What is the accounting 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?

Which of the following appears to be a more suitable investment?

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

Risk, Return, and Capital Budgeting

Mergers, Acquisitions, and Corporate Control

International Financial Management

Options

Risk Management

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