Exam 11: Project Analysis and Evaluation

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

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 $211.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 statements concerning variable costs is correct?

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?

Precise Machinery is analyzing a proposed project.The company expects to sell 2,100 units,give or take 5 percent.The expected variable cost per unit is $260 and the expected fixed costs are $589,000.Cost estimates are considered accurate within a plus or minus 4 percent range.The depreciation expense is $129,000.The sales price is estimated at $750 per unit,give or take 2 percent.The tax rate is 35 percent.The company is conducting a sensitivity analysis on the sales price using a sales price estimate of $755.What is the operating cash flow based on this analysis?

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?

Precise Machinery is analyzing a proposed project.The company expects to sell 2,300 units,give or take 5 percent.The expected variable cost per unit is $260 and the expected fixed costs are $589,000.Cost estimates are considered accurate within a plus or minus 4 percent range.The depreciation expense is $129,000.The sales price is estimated at $750 per unit,plus or minus 3 percent.What is the sales revenue under the worst case scenario?

Precise Machinery is analyzing a proposed project.The company expects to sell 2,100 units,give or take 5 percent.The expected variable cost per unit is $260 and the expected fixed costs are $589,000.Cost estimates are considered accurate within a plus or minus 4 percent range.The depreciation expense is $129,000.The sales price is estimated at $775 per unit,give or take 2 percent.The tax rate is 34 percent.The company is conducting a sensitivity analysis with fixed costs of $590,000.What is the OCF given this analysis?

Mr.Bear,your boss,will only agree to accept a project that,as a minimum,provides a rate of return equal to the requirement he has set for the project.Given this,explain how you can use break-even analysis to ascertain which projects will be acceptable to him as you don't want to risk hearing him growl if you waste his time presenting him with a project that is unacceptable.

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?

An analysis which combines scenario analysis with sensitivity analysis is called _____ analysis.

You are the manager of a project that has a 2.8 degree of operating leverage and a required return of 14 percent.Due to the current state of the economy,you expect sales to decrease by 7 percent next year.What change should you expect in the operating cash flows next year given your sales prediction?

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

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

The Metal Shop produces 1.8 million metal fasteners a year for industrial use.At this level of production,its total fixed costs are $320,000 and its total costs are $522,000.The firm can increase its production by 5 percent,without increasing either its total fixed costs or its variable costs per unit.A customer has made a one-time offer for an additional 50,000 units at a price per unit of $0.10.Should the firm sell the additional units at the offered price? Why or why not?

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 projected IRR of negative 100 percent.Which one of the following statements must also be true concerning this project?

Sunset United is analyzing a proposed project.The company expects to sell 15,000 units,plus or minus 4 percent.The expected variable cost per unit is $120 and the expected fixed costs are $311,000.The fixed and variable cost estimates are considered accurate within a plus or minus 3 percent range.The depreciation expense is $74,000.The tax rate is 35 percent.The sales price is estimated at $170 a unit,plus or minus 2 percent.What is the contribution margin per unit for a sensitivity analysis using a variable cost per unit of $125?

A project has an accounting break-even point of 15,329 units.The fixed costs are $382,000 and the projected variable cost per unit is $29.10.The project will require $780,000 for fixed assets which will be depreciated straight-line to zero over the project's 6-year life.What is the projected sales price per unit?

Consider a project with the following data: accounting break-even quantity = 29,000 units; cash break-even quantity = 16,250 units; life = 10 years; fixed costs = $203,000; variable costs = $24 per unit; required return = 14 percent; depreciation = straight line.Ignoring the effect of taxes,what is the financial break-even quantity?