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Exam 11: Project Analysis and Evaluation

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Question 51

Multiple Choice

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Given the following,which feature identifies the most desirable level of output for a project?

A) operating cash flow equal to the depreciation expense
B) payback period equal to the project's life
C) discounted payback period equal to the project's life
D) zero IRR
E) zero operating cash flow

F) C) and D)
G) D) and E)

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Question 52

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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,plus or minus 3 percent.What is the earnings before interest and taxes under the base case scenario?

A) $46,920
B) $93,160
C) $114,920
D) $69,000
E) $58,480

F) A) and E)
G) A) and B)

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Question 53

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Which one of the following is defined as the sales level that corresponds to a zero NPV?

Simulation analysis is based on assigning a _____ and analyzing the results.

An analysis of the change in a project's NPV when a single variable is changed is called _____ analysis.

What is forecasting risk and why is it important to the analysis of capital expenditure projects? What methods can be used to reduce this risk?

Which of the following variables will be at their highest expected level under a worst case scenario? I.fixed cost II.sales price III.variable cost IV.sales quantity

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

At the accounting break-even point,Swiss Mountain Gear sells 14,600 ski masks at a price of $12 each.At this level of production,the depreciation is $58,000 and the variable cost per unit is $4.What is the amount of the fixed costs at this production level?

The Motor Works is considering an expansion project with estimated annual fixed costs of $71,000,depreciation of $38,500,variable costs per unit of $17.90 and an estimated sales price of $26.50 per unit.How many units must the firm sell to break-even on a cash basis?

Variable costs can be defined as the costs that:

Bell Weather Goods has several proposed independent projects that have positive NPVs.However,the firm cannot initiate any of the projects due to a lack of financing.This situation is referred to as:

Which one of the following will best reduce the risk of a project by lowering the degree of operating leverage?

Assume that a country experiences a financial crisis that causes the nation's financial markets to freeze in a manner that prevents a private firm from raising capital from any source.Explain how project analysis conducted by that firm would work in this situation.

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

Which of the following characteristics relate to the cash break-even point for a given project? I.The project never pays back. II.The IRR equals the required rate of return. III.The NPV is negative and equal to the initial cash outlay. IV.The operating cash flow is equal to the depreciation expense.

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?

The procedure of allocating a fixed amount of funds for capital spending to each business unit is called:

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?

Which one of the following is the relationship between the percentage change in operating cash flow and the percentage change in quantity sold?