Exam 11: Project Analysis and Evaluation

Assume that a country experiences a financial crisis that causes the nation's financial markets to freeze in a manner that prevents a private firm from raising capital from any source. Explain how project analysis conducted by that firm would work in this situation.

Which one of the following will be used in the computation of the best-case analysis of a proposed project?

A project has earnings before interest and taxes of $14,600, fixed costs of $52,000, a selling price of $29 a unit, and a sales quantity of 16,000 units. All estimates are accurate within a plus/minus range of 3 percent. Depreciation is $12,000. What is the base case variable cost per unit?

Forecasting risk emphasizes the point that the correctness of any decision to accept or reject a project is highly dependent upon the:

When the operating cash flow of a project is equal to zero, the project is operating at the:

Sensitivity analysis determines the:

Cantor's has been busy analyzing a new product. Thus far, management has determined that an OCF of $218,200 will result in a zero net present value for the project, which is the minimum requirement for project acceptance. The fixed costs are $329,000 and the contribution margin per unit is $216.40. The company feels that it can realistically capture 2.5 percent of the 110,000 unit market for this product. The tax rate is 34 percent and the required rate of return is 11 percent. Should the company develop the new product? Why or why not?

Which one of the following is the relationship between the percentage change in operating cash flow and the percentage change in quantity sold?

Steve, the sales manager for TL Products, wants to sponsor a one-week "Customer Appreciation Sale" where the firm offers to sell additional units of a product at the lowest price possible without negatively affecting the firm's profits. Which one of the following represents the price that should be charged for the additional units during this sale?

What is forecasting risk and why is it important to the analysis of capital expenditure projects? What methods can be used to reduce this risk?

A proposed project has fixed costs of $36,000 per year. The operating cash flow at 18,000 units is $67,000. What will be the new degree of operating leverage if the number of units sold rises to 18,500?

A project has a unit price of $5,000, a variable cost per unit of $4,000, fixed costs of $17,000,000, and depreciation expense of $6,970,000. What is the accounting break-even quantity?

At a production level of 4,500 units, a project has total costs of $108,000. The variable cost per unit is $11.20. Assume the firm can increase production by 1,000 units without increasing its fixed costs. What will the total costs be if 4,800 units are produced?

By definition, which one of the following must equal zero at the accounting break-even point?

Which of the following are inversely related to variable costs per unit? I. contribution margin per unit II. number of units sold III. operating cash flow per unit IV. net profit per unit

Which of the following values will be equal to zero when a firm is producing the accounting break-even level of output? I. operating cash flow II. internal rate of return III. net income IV. payback period

The Motor Works is considering an expansion project with estimated annual fixed costs of $71,000, depreciation of $38,500, variable costs per unit of $17.90 and an estimated sales price of $28 per unit. How many units must the firm sell to break-even on a cash basis?

The change in variable costs that occurs when production is increased by one unit is referred to as the:

You are considering a project that you believe is quite risky. To reduce any potentially harmful results from accepting this project, you could:

A project has the following estimated data: price = $74 per unit; variable costs = $39.22 per unit; fixed costs = $6,500; required return = 8 percent; initial investment = $8,000; life = 4 years. Ignore the effect of taxes. What is the degree of operating leverage at the financial break-even level of output?