Question 1

At the accounting break-even point,the:

Accepted Answer

A) payback period must equal the required payback period. 
B) NPV is zero. 
C) IRR is zero. 
D) contribution margin per unit equals the fixed costs per unit. 
E) contribution margin per unit is zero.

Question 2

The contribution margin per unit is equal to the:

Accepted Answer

A) sales price per unit minus the total costs per unit. 
B) variable cost per unit minus the fixed cost per unit. 
C) sales price per unit minus the variable cost per unit. 
D) pre-tax profit per unit. 
E) aftertax profit per unit.

Question 3

Miller Mfg.is analyzing a proposed project.The company expects to sell 8,000 units,plus or minus 4 percent.The expected variable cost per unit is $11 and the expected fixed costs are $290,000.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 operating cash flow under the best case scenario?

Accepted Answer

A) $148,247 
B) $148,475 
C) $107,146 
D) $168,630 
E) $174,220

Question 4

Steve is fairly cautious when analyzing a new project and thus he projects the most optimistic,the most realistic,and the most pessimistic outcome that can reasonably be expected.Which type of analysis is Steve using?

Accepted Answer

A) simulation testing 
B) sensitivity analysis 
C) break-even analysis 
D) rationing analysis 
E) scenario analysis

Question 5

What is operating leverage and why is it important in the analysis of capital expenditure projects?

Accepted Answer

The answer of What is operating leverage and why is...

Question 6

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

Accepted Answer

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

Question 7

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?

Accepted Answer

A) yes; The offered price is less than the marginal cost. 
B) yes; The offered price is equal to the marginal cost. 
C) yes; The offered price is greater than the marginal cost. 
D) no; The offered price is less than the marginal cost. 
E) no; The offered price is greater than the marginal cost.

Question 8

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?

Accepted Answer

A) average variable cost 
B) average total cost 
C) average total revenue 
D) marginal revenue 
E) marginal cost

Question 9

A company is considering a project with a cash break-even point of 22,600 units.The selling price is $28 a unit,the variable cost per unit is $13,and depreciation is $14,000.What is the projected amount of fixed costs?

Accepted Answer

A) $325,000 
B) $339,000 
C) $342,000 
D) $348,000 
E) $353,000

Question 10

In an effort to capture the large jet market,Hiro Airplanes invested $12.68 billion developing its B490,which is capable of carrying 800 passengers.The plane has a list price of $275 million.In discussing the plane,Hiro Airplanes stated that the company would break-even when 246 B490s were sold.Assume the break-even sales figure given is the cash flow break-even.Suppose the sales of the B490 last for only 9 years.How many airplanes must Hiro Airplanes sell per year to provide its shareholders a 19 percent rate of return on this investment?

Accepted Answer

A) 47.17 
B) 52.48 
C) 59.09 
D) 63.10 
E) 68.40

Question 11

PC Enterprises wants to commence a new project but is unable to obtain the financing under any circumstances.This firm is facing:

Accepted Answer

A) financial deferral. 
B) financial allocation. 
C) capital allocation. 
D) marginal rationing. 
E) hard rationing.

Question 12

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

Accepted Answer

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

Question 13

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?

Accepted Answer

A) $337,975 
B) $285,350 
C) $368,250 
D) $374,874 
E) $414,350

Question 14

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

Accepted Answer

A) net present value 
B) internal rate of return 
C) contribution margin 
D) net income 
E) operating cash flow

Question 15

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?

Accepted Answer

A) 19.60 percent decrease 
B) 16.03 percent decrease 
C) 13.46 percent decrease 
D) 5.60 percent decrease 
E) 2.74 percent decrease

Question 16

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?

Accepted Answer

A) 2.716 
B) 3.691 
C) 4.528 
D) 6.003 
E) 7.337

Question 17

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

Accepted Answer

A) lower the degree of operating leverage. 
B) lower the contribution margin per unit. 
C) increase the initial cash outlay. 
D) increase the fixed costs per unit while lowering the contribution margin per unit. 
E) lower the operating cash flow of the project.

Question 18

Which one of the following characteristics best describes a project that has a low degree of operating leverage?

Accepted Answer

A) high variable costs relative to the fixed costs 
B) relatively high initial cash outlay 
C) an OCF that is highly sensitive to the sales quantity 
D) high level of forecasting risk 
E) a high depreciation expense

Question 19

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.What is the contribution margin per unit under the best case scenario?

Accepted Answer

A) $209.52 
B) $494.60 
C) $469.52 
D) $490.00 
E) $515.40

Question 20

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

Accepted Answer

A) maximum possible level of production. 
B) minimum possible level of production. 
C) financial break-even point. 
D) accounting break-even point. 
E) cash break-even point.

Exam 11: Project Analysis and Evaluation