Exam 11: Project Analysis and Evaluation

We are evaluating a project that costs $854,000,has a 15-year life,and has no salvage value.Assume that depreciation is straight-line to zero over the life of the project.Sales are projected at 154,000 units per year.Price per unit is $41,variable cost per unit is $20,and fixed costs are $865,102 per year.The tax rate is 33 percent,and we require a 14 percent return on this project.Suppose the projections given for price,quantity,variable costs,and fixed costs are all accurate to within ±14 percent.What is the worst-case NPV?

Cool Shades,Inc.(CSI)manufactures biotech sunglasses.The variable materials cost is $1.69 per unit,and the variable labor cost is $3.04 per unit.Suppose the firm incurs fixed costs of $750,000 during a year in which total production is 450,000 units and the selling price is $11.50 per unit.What is the cash break-even point?

Forecasting risk is defined as the possibility that:

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

At an output level of 50,000 units,you calculate that the degree of operating leverage is 1.8.What will be the percentage change in operating cash flow if the new output level is 54,500 units?

Miller Mfg.is analyzing a proposed project.The company expects to sell 8,000 units,plus or minus 2 percent.The expected variable cost per unit is $11 and the expected fixed costs are $287,000.The fixed and variable cost estimates are considered accurate within a plus or minus 5 percent range.The depreciation expense is $68,000.The tax rate is 32 percent.The sales price is estimated at $64 a unit,give or take 3 percent.What is the net income under the worst case scenario?

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?

Mountain Gear can manufacture mountain climbing shoes for $15.25 per pair in variable raw material costs and $18.46 per paid in variable labor costs.The shoes sell for $135 per pair.Last year,production was 170,000 pairs and fixed costs were $830,000.What is the minimum acceptable total revenue the company should accept for a one-time order for an extra 10,000 pairs?

Theresa is analyzing a project that currently has a projected NPV of zero.Which of the following changes that she is considering will help that project produce a positive NPV instead? Consider each change independently. I.increase the quantity sold II.decrease the fixed leasing cost for equipment III.decrease the labor hours needed to produce one unit IV.increase the sales price

The contribution margin per unit is equal to the:

Scenario analysis is best suited to accomplishing which one of the following when analyzing a project?

Which one of the following types of analysis is the most complex to conduct?

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?

Scenario analysis is defined 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:

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?

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:

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

Brubaker & Goss has received requests for capital investment funds for next year from each of its five divisions.All requests represent positive net present value projects.All projects are independent.Senior management has decided to allocate the available funds based on the profitability index of each project since the company has insufficient funds to fulfill all of the requests.Management is following a practice known as:

A project has a payback period that exactly equals the project's life.The project is operating at: