Question 1

The Wiltmore Co. would like to add a new product to complete their lineup. They want to know how many units they must sell to limit their potential loss to their initial investment. What is this quantity if their fixed costs are $12,000, the depreciation expense is $2,500, and the contribution margin is $1.30? (Round to whole units)

Accepted Answer

A)   9,231 units
B)   9,903 units
C)   10,002 units
D)   10,629 units
E)   11,154 unitsF) B) and C)
G) A) and B)

Question 2

Which of the following does NOT correctly complete this sentence: A project that just breaks even in an accounting sense ___________________.

Accepted Answer

A)   Will lose money in a financial sense.
B)   Will result in zero taxes paid.
C)   Will not contribute to net income for the firm.
D)   Will have a payback period less than the life of the project.
E)   Will have operating cash flow equal to depreciation expense.F) A) and D)
G) A) and C)

Question 3

Provide a definition for the term simulation analysis.

Accepted Answer

A combination of sce...

Question 4

The analysis of the effects on a project's net present value when only one variable changes is called ______ analysis.

Accepted Answer

A)   Simulation.
B)   Upper and lower bound.
C)   Scenario.
D)   Sensitivity.
E)   Break-even.F) A) and D)
G) B) and E)

Question 5

The possibility that errors in projected cash flows can lead to incorrect estimates of net present value is called _____ risk.

Accepted Answer

A)   Forecasting.
B)   Projection.
C)   Scenario.
D)   Monte Carlo.
E)   Accounting.F) A) and D)
G) B) and D)

Question 6

A project has earnings before interest and taxes of $5,750, fixed costs of $50,000, a selling price of $13 a unit, and a sales quantity of 11,500 units. Depreciation is $7,500. What is the variable cost per unit?

Accepted Answer

A)   $6.75
B)   $7.00
C)   $7.25
D)   $7.50
E)   $7.75F) A) and B)
G) A) and C)

Question 7

Which of the following statements regarding operating leverage is correct?

Accepted Answer

A)   All else the same, firms with high operating leverage have higher total fixed costs.
B)   It is generally easier to decrease operating leverage than it is to increase it.
C)   All else the same, operating leverage will rise as output increases.
D)   In order to calculate the degree of operating leverage all that is needed are variable costs and operating cash flows.
E)   All else the same, the degree of operating leverage rises as the price per unit is increased.F) B) and C)
G) A) and E)

Question 8

A project requires an initial investment of $10,000, straight-line depreciable to zero over four years. The discount rate is 10%. Your tax bracket is 34% and you receive a tax credit for negative earnings in the year in which the loss occurs. Additional information for variables with forecast error are shown below.  Suppose you want to conduct a sensitivity analysis for the possible changes in unit sales. What is the IRR when the sales level equals 3,250 units?

Accepted Answer

A)   32.6%
B)   42.8%
C)   57.9%
D)   118.6%
E)   121.5%F) A) and B)
G) C) and D)

Question 9

Taking into account the managerial options implicit in a project is called:

Accepted Answer

A)   Managerial oversight.
B)   Tactical planning.
C)   Strategic planning.
D)   Contingency planning.
E)   Constrained capital budgeting analysis.F) C) and D)
G) All of the above

Question 10

A golf course/property developer buys twice as much land as is needed to build an 18 hole golf course and housing development so that, if things go very well, a second 18 hole golf course and housing project can be added to the project. The developer is prepared to exercise the:

Accepted Answer

A)   Option to default.
B)   Option to expand.
C)   Option to abandon.
D)   Option to wait.
E)   Option to rebuild.F) C) and D)
G) C) and E)

Question 11

If you see a worst-case scenario for a project, the analyst is likely using ______________.

Accepted Answer

A)   Scenario analysis.
B)   Sensitivity analysis.
C)   Base-case analysis.
D)   Simulation analysis.
E)   Multiple-outcome analysis.F) A) and E)
G) B) and D)

Question 12

Which one of the following statements concerning sensitivity analysis is correct?

Accepted Answer

A)   A project that has positive internal rates of return under the base, best, and worst case scenarios is a project that will produce a positive net present value under all three of those conditions.
B)   When measuring the sensitivity of the sales price, the estimated variable cost per unit used in the analysis should be changed in direct proportion to the change in the estimated level of sales.
C)   The most common approach to sensitivity analysis is to simultaneously vary sales in an upward direction as the estimated costs are varied in a downward direction to estimate the most optimistic outcome that can be reasonably expected.
D)   Sensitivity analysis on the sales quantity generally indicates that the net present value of a project is inversely related to the quantity of units produced and sold.
E)   The amount of forecast risk in any one variable can be ascertained using sensitivity analysis.F) C) and E)
G) A) and C)

Question 13

Which one of the following statements related to variable costs is correct?

Accepted Answer

A)   Variable costs fluctuate over the long-term but remain constant over the short-term.
B)   An increase in the variable cost per unit increases the contribution margin.
C)   Variable costs change only when the quantity is varied by at least five percent.
D)   When production is halted, the variable costs of a project equal zero.
E)   The variable cost per unit is equal to the marginal cost at any level of output.F) All of the above
G) D) and E)

Question 14

The percentage change in firm (or project)  operating cash flow relative to the percentage change in quantity sold is called (the) :

Accepted Answer

A)   Cash flow marginal profit.
B)   Degree of operating leverage.
C)   Gross profit.
D)   Net profit.
E)   Financial break-even.F) A) and B)
G) A) and C)

Question 15

To increase the contribution margin a firm must either _____ or _____.

Accepted Answer

A)   Increase its sales price; increase its fixed cost per unit.
B)   Increase its sales price; decrease its variable cost per unit.
C)   Increase its sales price; decrease its fixed cost per unit.
D)   Increase its variable cost per unit; decrease its fixed cost per unit.
E)   Decrease its variable cost per unit; decrease its fixed cost per unit.F) A) and C)
G) A) and B)

Question 16

What is the degree of operating leverage? Sales = 100,000 units; price = $50; variable cost = $30; fixed costs = $950,000; depreciation = $250,000; tax rate = 34%.

Accepted Answer

A)   1.06
B)   1.22
C)   1.37
D)   1.63
E)   2.22F) All of the above
G) B) and D)

Question 17

Capital intensive projects have a high degree of operating leverage.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following best describe the term forecasting risk.

Accepted Answer

A)   The percentage change in operating cash flow relative to the percentage change in quantity sold.
B)   The sales level that results in a zero NPV.
C)   Costs that do not change when the quantity of output changes during a particular time period.
D)   The possibility that errors in projected cash flows lead to incorrect decisions.
E)   Opportunities that managers can exploit if certain things happen in the future.F) B) and E)
G) All of the above

Question 19

The accounting break-even production quantity for a project is 6,208 units. The fixed costs are $27,400 and the contribution margin is $5.20. What is the projected depreciation expense?

Accepted Answer

A)   $4,413.66
B)   $4,881.60
C)   $5,002.50
D)   $5,087.30
E)   $5,133.33F) B) and E)
G) A) and B)

Question 20

The higher the degree of operating leverage, the lower the break-even point, regardless of how it's measured.

Accepted Answer

A) True 
 B)False

Exam 11: Project Analysis and Evaluation

Correct Answer
verified

The percentage change in firm (or project) operating cash flow relative to the percentage change in quantity sold is called (the) :

Correct Answer
verified

Which one of the following statements concerning sensitivity analysis is correct?

Correct Answer
verified

The analysis of the effects on a project's net present value when only one variable changes is called ______ analysis.

Correct Answer
verified

Taking into account the managerial options implicit in a project is called:

Correct Answer
verified

What is the degree of operating leverage? Sales = 100,000 units; price = $50; variable cost = $30; fixed costs = $950,000; depreciation = $250,000; tax rate = 34%.

Correct Answer
verified

If you see a worst-case scenario for a project, the analyst is likely using ______________.

Correct Answer
verified

The higher the degree of operating leverage, the lower the break-even point, regardless of how it's measured.

Correct Answer
verified

Provide a definition for the term simulation analysis.

Correct Answer
verified
A combination of sce...
View Answer

Which one of the following statements related to variable costs is correct?

Correct Answer
verified

The possibility that errors in projected cash flows can lead to incorrect estimates of net present value is called _____ risk.

Correct Answer
verified

Capital intensive projects have a high degree of operating leverage.

Correct Answer
verified

A project has earnings before interest and taxes of $5,750, fixed costs of $50,000, a selling price of $13 a unit, and a sales quantity of 11,500 units. Depreciation is $7,500. What is the variable cost per unit?

Correct Answer
verified

Which of the following best describe the term forecasting risk.

Correct Answer
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Which of the following does NOT correctly complete this sentence: A project that just breaks even in an accounting sense ___________________.

Correct Answer
verified

Correct Answer
verified

Which of the following statements regarding operating leverage is correct?

Correct Answer
verified

A golf course/property developer buys twice as much land as is needed to build an 18 hole golf course and housing development so that, if things go very well, a second 18 hole golf course and housing project can be added to the project. The developer is prepared to exercise the:

Correct Answer
verified

To increase the contribution margin a firm must either _ or _.

Correct Answer
verified

The accounting break-even production quantity for a project is 6,208 units. The fixed costs are $27,400 and the contribution margin is $5.20. What is the projected depreciation expense?

Correct Answer
verified

Exam 11: Project Analysis and Evaluation

Correct AnswerverifiedShow Answer

The percentage change in firm (or project) operating cash flow relative to the percentage change in quantity sold is called (the) :

Correct AnswerverifiedShow Answer

Which one of the following statements concerning sensitivity analysis is correct?

Correct AnswerverifiedShow Answer

The analysis of the effects on a project's net present value when only one variable changes is called ______ analysis.

Correct AnswerverifiedShow Answer

Taking into account the managerial options implicit in a project is called:

Correct AnswerverifiedShow Answer

What is the degree of operating leverage? Sales = 100,000 units; price = $50; variable cost = $30; fixed costs = $950,000; depreciation = $250,000; tax rate = 34%.

Correct AnswerverifiedShow Answer

If you see a worst-case scenario for a project, the analyst is likely using ______________.

Correct AnswerverifiedShow Answer

The higher the degree of operating leverage, the lower the break-even point, regardless of how it's measured.

Correct AnswerverifiedShow Answer

Provide a definition for the term simulation analysis.

Correct AnswerverifiedA combination of sce...View AnswerShow Answer

Which one of the following statements related to variable costs is correct?

Correct AnswerverifiedShow Answer

The possibility that errors in projected cash flows can lead to incorrect estimates of net present value is called _____ risk.

Correct AnswerverifiedShow Answer

Capital intensive projects have a high degree of operating leverage.

Correct AnswerverifiedShow Answer

A project has earnings before interest and taxes of $5,750, fixed costs of $50,000, a selling price of $13 a unit, and a sales quantity of 11,500 units. Depreciation is $7,500. What is the variable cost per unit?

Correct AnswerverifiedShow Answer

Which of the following best describe the term forecasting risk.

Correct AnswerverifiedShow Answer

Which of the following does NOT correctly complete this sentence: A project that just breaks even in an accounting sense ___________________.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following statements regarding operating leverage is correct?

Correct AnswerverifiedShow Answer

A golf course/property developer buys twice as much land as is needed to build an 18 hole golf course and housing development so that, if things go very well, a second 18 hole golf course and housing project can be added to the project. The developer is prepared to exercise the:

Correct AnswerverifiedShow Answer

To increase the contribution margin a firm must either _____ or _____.

Correct AnswerverifiedShow Answer

The accounting break-even production quantity for a project is 6,208 units. The fixed costs are $27,400 and the contribution margin is $5.20. What is the projected depreciation expense?

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
A combination of sce...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

To increase the contribution margin a firm must either _ or _.

Correct Answer
verified

Correct Answer
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