Question 1

Scenario analysis allows managers to look at different and sometimes inconsistent combinations of variables.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following statements is correct concerning sensitivity analysis?

Accepted Answer

A)  It ignores interrelationships between variables. 
B)  Several variables are allowed to change concurrently. 
C)  It considers all feasible variable combinations. 
D)  Its results are free from ambiguity. 
A)  It ignores interrelationships between variables. 
B)  Several variables are allowed to change concurrently. 
C)  It considers all feasible variable combinations. 
D)  Its results are free from ambiguity.

Question 3

The greater the DOL,the greater the protection against operating losses during economic downturns.

Accepted Answer

A) True 
 B)False

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

One characteristic of scenario analysis is that:

Accepted Answer

A)  it allows only one variable at a time to change. 
B)  it limits variation to only the more likely combinations. 
C)  all or nearly all variations are analyzed, regardless of likelihood. 
D)  managers generate each variation by hand. 
A)  it allows only one variable at a time to change. 
B)  it limits variation to only the more likely combinations. 
C)  all or nearly all variations are analyzed, regardless of likelihood. 
D)  managers generate each variation by hand.

Question 6

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%.

Accepted Answer

A)  $2,769,231 
B)  $2,857,143 
C)  $4,000,000 
D)  $5,142,857 
A)  $2,769,231 
B)  $2,857,143 
C)  $4,000,000 
D)  $5,142,857

Question 7

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

Accepted Answer

A)  NPV decreases by $200.00. 
B)  NPV decreases by $173.91. 
C)  NPV decreases by $130.00. 
D)  NPV decreases by $113.04. 
A)  NPV decreases by $200.00. 
B)  NPV decreases by $173.91. 
C)  NPV decreases by $130.00. 
D)  NPV decreases by $113.04.

Question 8

When the level of fixed costs is decreased,the break-even level of revenues:

Accepted Answer

A)  will automatically decrease. 
B)  will automatically increase. 
C)  may or may not be changed, depending on variable costs. 
D)  will remain unchanged, because fixed costs cannot be altered. 
A)  will automatically decrease. 
B)  will automatically increase. 
C)  may or may not be changed, depending on variable costs. 
D)  will remain unchanged, because fixed costs cannot be altered.

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

The cash flows of the superstore project in each year will depend on sales as follows:
  
 What level of sales per year is needed for the investment to have a zero NPV?

Accepted Answer

This cash flow will last for 12 years.To

Question 11

Soft capital rationing may be beneficial to a firm if it:

Accepted Answer

A)  reduces a firm's interest expense. 
B)  weeds out proposals with weaker or biased NPVs. 
C)  allows managers to select their favorite projects. 
D)  increases funds to be used for other purposes. 
A)  reduces a firm's interest expense. 
B)  weeds out proposals with weaker or biased NPVs. 
C)  allows managers to select their favorite projects. 
D)  increases funds to be used for other purposes.

Question 12

How much does each additional sales dollar contribute toward profit for a firm with $5 million break-even level of revenues and $1.5 million in fixed costs including depreciation?

Accepted Answer

A)  $0.30 
B)  $0.33 
C)  $0.50 
D)  $0.67 
A)  $0.30 
B)  $0.33 
C)  $0.50 
D)  $0.67

Question 13

What is the maximum percentage of variable costs in relation to sales that a firm could experience and still break even with $5 million revenue,$1 million fixed costs,and $500,000 depreciation?

Accepted Answer

A)  30% 
B)  70% 
C)  80% 
D)  90% 
A)  30% 
B)  70% 
C)  80% 
D)  90%

Question 14

How much depreciation expense exists in a firm that has a break-even level of revenues of $2 million,fixed costs of $400,000,and a 60% ratio of variable costs to sales?

Accepted Answer

A)  $144,000 
B)  $266,667 
C)  $400,000 
D)  $666,667 
A)  $144,000 
B)  $266,667 
C)  $400,000 
D)  $666,667

Question 15

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 16

Describe the process of sensitivity analysis and list some of the common variables that you would expect to analyze.

Accepted Answer

Beginning from the initial forecast of p

Question 17

For a firm with a DOL of 3.5,an increase in sales of 6% will:

Accepted Answer

A)  increase pretax profits by 3.5%. 
B)  decrease pretax profits by 3.5%. 
C)  increase pretax profits by 21.0%. 
D)  increase pretax profits by 1.71%. 
A)  increase pretax profits by 3.5%. 
B)  decrease pretax profits by 3.5%. 
C)  increase pretax profits by 21.0%. 
D)  increase pretax profits by 1.71%.

Question 18

The option 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)  generates 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)  generates a positive NPV. 
D)  has a steady degree of operating leverage.

Exam 10: Project Analysis

Scenario analysis allows managers to look at different and sometimes inconsistent combinations of variables.

Which of the following statements is correct concerning sensitivity analysis?

The greater the DOL,the greater the protection against operating losses during economic downturns.

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

One characteristic of scenario analysis is that:

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%.

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

When the level of fixed costs is decreased,the break-even level of revenues:

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

The cash flows of the superstore project in each year will depend on sales as follows: What level of sales per year is needed for the investment to have a zero NPV?

Soft capital rationing may be beneficial to a firm if it:

How much does each additional sales dollar contribute toward profit for a firm with $5 million break-even level of revenues and $1.5 million in fixed costs including depreciation?

What is the maximum percentage of variable costs in relation to sales that a firm could experience and still break even with $5 million revenue,$1 million fixed costs,and $500,000 depreciation?

How much depreciation expense exists in a firm that has a break-even level of revenues of $2 million,fixed costs of $400,000,and a 60% ratio of variable costs to sales?

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.

Describe the process of sensitivity analysis and list some of the common variables that you would expect to analyze.

For a firm with a DOL of 3.5,an increase in sales of 6% will:

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

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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