Question 1

Operating leverage is the degree of dependence a firm places on its:

Accepted Answer

A) variable costs. 
B) fixed costs. 
C) sales. 
D) operating cash flows. 
E) net working capital. 
A) variable costs. 
B) fixed costs. 
C) sales. 
D) operating cash flows. 
E) net working capital.

Question 2

Consider a 6-year project with the following information: initial fixed asset investment = $460,000; straight-line depreciation to zero over the 6-year life; zero salvage value; price = $34; variable costs = $19; fixed costs = $188,600; quantity sold = 90,528 units; tax rate = 32 percent.What is the sensitivity of OCF to changes in quantity sold?

Accepted Answer

A) $10.20 per unit 
B) $11.16 per unit 
C) $11.38 per unit 
D) $12.33 per unit 
E) $12.54 per unit 
A) $10.20 per unit 
B) $11.16 per unit 
C) $11.38 per unit 
D) $12.33 per unit 
E) $12.54 per unit

Question 3

Your company is reviewing a project with estimated labor costs of $21.20 per unit,estimated raw material costs of $37.18 a unit,and estimated fixed costs of $20,000 a month.Sales are projected at 42,000 units over the one-year life of the project.All estimates are accurate within a range of plus or minus 4 percent.What are the total variable costs for the worst-case scenario?

Accepted Answer

A) $890,400 
B) $1,561,560 
C) $2,448,037 
D) $2,451,960 
E) $2,691,960 
A) $890,400 
B) $1,561,560 
C) $2,448,037 
D) $2,451,960 
E) $2,691,960

Question 4

An increase in which of the following will increase the accounting break-even quantity? Assume straight-line depreciation is used.
I.annual salary for the firm's president
II.contribution margin per unit
III.cost of equipment required by a project
IV.variable cost per unit

Accepted Answer

A) I and III only 
B) I and IV only 
C) II and III only 
D) I, III, and IV only 
E) I, II, and IV only 
A) I and III only 
B) I and IV only 
C) II and III only 
D) I, III, and IV only 
E) I, II, and IV only

Question 5

At a production level of 4,500 units,a project has total costs of $107,000.The variable cost per unit is $12.50.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?

Accepted Answer

A) $102,780 
B) $104,640 
C) $106,400 
D) $108,000 
E) $110,750 
A) $102,780 
B) $104,640 
C) $106,400 
D) $108,000 
E) $110,750

Question 6

Which of the following statements are identified with financial break-even point?
I.The present value of the cash inflows exactly offsets the initial cash outflow.
II.The payback period is equal to the life of the project.
III.The NPV is zero.
IV.The discounted payback period equals the life of the project.

Accepted Answer

A) I and II only 
B) I and III only 
C) II and IV only 
D) I, II, and III only 
E) I, III, and IV only 
A) I and II only 
B) I and III only 
C) II and IV only 
D) I, II, and III only 
E) I, III, and IV only

Question 7

Hybrid cars are touted as a "green" alternative; however,the financial aspects of hybrid ownership are not as clear.Consider a hybrid model that has a list price of $5,500 (including tax consequences)more than a comparable car with a traditional gasoline engine.Additionally,the annual ownership costs (other than fuel)for the hybrid were expected to be $420 more than the traditional model.The EPA mileage estimate is 23 mpg for the traditional model and 25 mpg for the hybrid model.Assume the appropriate interest rate is 10 percent,all cash flows occur at the end of the year,you drive 15,900 miles per year,and keep either car for 6 years.What price per gallon would make the decision to buy they hybrid worthwhile?

Accepted Answer

A) $18.79 
B) $21.48 
C) $27.19 
D) $28.32 
E) $30.43 
A) $18.79 
B) $21.48 
C) $27.19 
D) $28.32 
E) $30.43

Question 8

A project has a unit price of $5,000,a variable cost per unit of $3,750,fixed costs of $17,000,000,and depreciation expense of $6,970,000.What is the accounting break-even quantity?

Accepted Answer

A) 6,970 units 
B) 10,030 units 
C) 17,000 units 
D) 18,470 units 
E) 19,176 units 
A) 6,970 units 
B) 10,030 units 
C) 17,000 units 
D) 18,470 units 
E) 19,176 units

Question 9

When you assign the lowest anticipated sales price and the highest anticipated costs to a project,you are analyzing the project under the condition known as:

Accepted Answer

A) best case sensitivity analysis. 
B) worst case sensitivity analysis. 
C) best case scenario analysis. 
D) worst case scenario analysis. 
E) base case scenario analysis. 
A) best case sensitivity analysis. 
B) worst case sensitivity analysis. 
C) best case scenario analysis. 
D) worst case scenario analysis. 
E) base case scenario analysis.

Question 10

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?

Accepted Answer

A) $22.16 
B) $23.84 
C) $24.09 
D) $24.23 
E) $25.18 
A) $22.16 
B) $23.84 
C) $24.09 
D) $24.23 
E) $25.18

Question 11

What are the key features of the accounting,cash,and financial break-even points?

Accepted Answer

Accounting break-even: Net income @#LAT-DLM& Depre

Question 12

Steele Insulators is analyzing a new type of insulation for interior walls.Management has compiled the following information to determine whether or not this new insulation should be manufactured.The insulation project has an initial fixed asset requirement of $1.3 million,which would be depreciated straight-line to zero over the 12-year life of the project.Projected fixed costs are $769,000 and the anticipated annual operating cash flow is $241,000.What is the degree of operating leverage for this project?

Accepted Answer

A) 3.78 
B) 3.92 
C) 4.19 
D) 4.27 
E) 4.53 
A) 3.78 
B) 3.92 
C) 4.19 
D) 4.27 
E) 4.53

Question 13

Wexford Industrial Supply is considering a new project with estimated depreciation of $26,000,fixed costs of $79,000,and total sales of $187,000.The variable costs per unit are estimated at $11.80.What is the accounting break-even level of production?

Accepted Answer

A) 4,871 units 
B) 5,333 units 
C) 5,415 units 
D) 6,949 units 
E) 7,248 units 
A) 4,871 units 
B) 5,333 units 
C) 5,415 units 
D) 6,949 units 
E) 7,248 units

Question 14

A proposed project has fixed costs of $9,800,depreciation expense of $2,550,and a sales quantity of 2,100 units.The total variable costs are $5,607.What is the contribution margin per unit if the projected level of sales is the accounting break-even point?

Accepted Answer

A) $3.28 
B) $4.07 
C) $5.88 
D) $6.16 
E) $7.11 
A) $3.28 
B) $4.07 
C) $5.88 
D) $6.16 
E) $7.11

Question 15

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

Accepted Answer

A) minimal number of units that are expected to be produced and sold 
B) the lowest expected salvage value that can be obtained for a project's fixed assets 
C) the most anticipated sales price per unit 
D) the lowest variable cost per unit that can reasonably be expected 
E) the highest level of fixed costs that is actually anticipated 
A) minimal number of units that are expected to be produced and sold 
B) the lowest expected salvage value that can be obtained for a project's fixed assets 
C) the most anticipated sales price per unit 
D) the lowest variable cost per unit that can reasonably be expected 
E) the highest level of fixed costs that is actually anticipated

Question 16

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

Accepted Answer

A) marginal cost. 
B) average cost. 
C) total cost. 
D) scenario cost. 
E) net cost. 
A) marginal cost. 
B) average cost. 
C) total cost. 
D) scenario cost. 
E) net cost.

Question 17

The accounting break-even production quantity for a project is 12,320 units.The fixed costs are $216,000 and the contribution margin per unit is $28.The fixed assets required for the project will be depreciated on straight-line basis to zero over the project's 5-year life.What is the amount of fixed assets required for this project?

Accepted Answer

A) $325,920 
B) $644,800 
C) $748,500 
D) $1,080,000 
E) $1,629,600 
A) $325,920 
B) $644,800 
C) $748,500 
D) $1,080,000 
E) $1,629,600

Question 18

A proposed project has fixed costs of $36,000 per year.The operating cash flow at 18,000 units is $58,000.What will be the new degree of operating leverage if the number of units sold rises to 18,500?

Accepted Answer

A) 1.46 
B) 1.59 
C) 1.67 
D) 2.08 
E) 2.14 
A) 1.46 
B) 1.59 
C) 1.67 
D) 2.08 
E) 2.14

Question 19

The change in revenue that occurs when one more unit of output is sold is referred to as:

Accepted Answer

A) marginal revenue. 
B) average revenue. 
C) total revenue. 
D) erosion. 
E) scenario revenue. 
A) marginal revenue. 
B) average revenue. 
C) total revenue. 
D) erosion. 
E) scenario revenue.

Question 20

Which one of the following represents the level of output where a project produces a rate of return just equal to its requirement?

Accepted Answer

A) capital break-even 
B) cash break-even 
C) accounting break-even 
D) financial break-even 
E) internal break-even 
A) capital break-even 
B) cash break-even 
C) accounting break-even 
D) financial break-even 
E) internal break-even

Exam 11: Project Analysis and Evaluation

Operating leverage is the degree of dependence a firm places on its:

An increase in which of the following will increase the accounting break-even quantity? Assume straight-line depreciation is used. I.annual salary for the firm's president II.contribution margin per unit III.cost of equipment required by a project IV.variable cost per unit

At a production level of 4,500 units,a project has total costs of $107,000.The variable cost per unit is $12.50.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?

A project has a unit price of $5,000,a variable cost per unit of $3,750,fixed costs of $17,000,000,and depreciation expense of $6,970,000.What is the accounting break-even quantity?

When you assign the lowest anticipated sales price and the highest anticipated costs to a project,you are analyzing the project under the condition known as:

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?

What are the key features of the accounting,cash,and financial break-even points?

Wexford Industrial Supply is considering a new project with estimated depreciation of $26,000,fixed costs of $79,000,and total sales of $187,000.The variable costs per unit are estimated at $11.80.What is the accounting break-even level of production?

A proposed project has fixed costs of $9,800,depreciation expense of $2,550,and a sales quantity of 2,100 units.The total variable costs are $5,607.What is the contribution margin per unit if the projected level of sales is the accounting break-even point?

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

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

A proposed project has fixed costs of $36,000 per year.The operating cash flow at 18,000 units is $58,000.What will be the new degree of operating leverage if the number of units sold rises to 18,500?

The change in revenue that occurs when one more unit of output is sold is referred to as:

Which one of the following represents the level of output where a project produces a rate of return just equal to its requirement?

Introduction to Corporate Finance

Financial Statements,Taxes,and Cash Flow

Working With Financial Statements

Long-Term Financial Planning and Growth

Introduction to Valuation: The Time Value of Money

Discounted Cash Flow Valuation

Interest Rates and Bond Valuation

Stock Valuation

Net Present Value and Other Investment Criteria

Making Capital Investment Decisions

Some Lessons From Capital Market History

Return,Risk,and the Security Market Line

Cost of Capital

Raising Capital

Financial Leverage and Capital Structure Policy

Dividends and Payout Policy

Short-Term Finance and Planning

Cash and Liquidity Management

Credit and Inventory Management

International Corporate Finance

Behavioral Finance: Implications for Financial Management

Enterprise Risk Management

Options and Corporate Finance

Option Valuation

Mergers and Acquisitions

Leasing

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