Question 1

What-if analysis can help identify the inputs that are most worth refining before you commit to a project.

Accepted Answer

A) True 
 B)False  True

Question 2

The option to abandon a project becomes more valuable as the possible outcomes become more varied.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following techniques may be more appropriate to analyze projects with interrelated variables?

Accepted Answer

A)   sensitivity analysis
B)   scenario analysis
C)   break-even analysis
D)   DOL analysisE) All of the above
F) A) and C)

Question 4

What is the maximum percentage of variable costs in relation to sales that a firm could experience and still break even with $5 million revenue,$1 million fixed costs,and $500,000 depreciation?

Accepted Answer

A)   30 percent
B)   70 percent
C)   80 percent
D)   90 percentE) A) and C)
F) None of the above

Question 5

What happens to a firm with high operating leverage when the overall level of sales is very high?

Accepted Answer

A)   the firm has higher levels of fixed costs.
B)   the firm will enjoy high profits.
C)   the firm will not break even in accounting terms.
D)   the firm will have a reduced level of fixed costs.E) None of the above
F) A) and B)

Question 6

Confirm that the percentage change in profits equals DOL times the percentage change in sales.

Accepted Answer

Percent change in pr...

Question 7

According to decision-tree analysis,investment projects should be discontinued when:

Accepted Answer

A)   the probability of success is less than 50 percent.
B)   NPV is calculated to be negative.
C)   DOL increases from previous levels.
D)   the possibility of a failing outcome exists.E) B) and C)
F) None of the above

Question 8

The inputs that are most worth refining before you commit to a project are the ones that have the greatest potential to alter project NPV.

Accepted Answer

A) True 
 B)False

Question 9

If the level of sales is less than that calculated as the NPV break-even level,then the:

Accepted Answer

A)   project will break even only in accounting terms.
B)   project's NPV will be greater than zero but less than the opportunity cost of capital.
C)   project will have a negative NPV.
D)   discount rate should be reduced.E) A) and B)
F) A) and C)

Question 10

What is the break-even level of revenues for a firm with $6 million in sales,variable costs of $3.9 million,fixed costs of $1.2 million,and depreciation of $1 million?

Accepted Answer

A)   $3,428,571
B)   $6,100,000
C)   $6,285,714
D)   $6,557,377E) None of the above
F) A) and B)

Question 11

Beryl expects her sales to increase by 20 percent next year.If this year's sales are $500,000 and the degree of operating leverage (DOL)is 1.4,what is the expected level of operating income (EBIT)for next year if this year's EBIT is $100,000?

Accepted Answer

Next year's EBIT equals (this year's EBIT x20% x 1.4)+ this year's EBIT = ($100,000 x 20% x 1.4)+ $100,000 = $128,000

Question 12

The break-even level of sales represents the point where:

Accepted Answer

A)   fixed costs are covered.
B)   variable costs are covered.
C)   fixed costs and variable costs are covered.
D)   fixed costs, variable costs, and depreciation are covered.E) A) and D)
F) A) and C)

Question 13

Which of the following capital budgeting proposals is most likely to display a conflict of interests?

Accepted Answer

A)   the proposal with the highest NPV.
B)   the proposal with the longest payback period.
C)   the proposal with highest IRR and quickest payback.
D)   the proposal to solve pollution problems.E) A) and D)
F) A) and C)

Question 14

Why is managerial flexibility important in capital budgeting?

Accepted Answer

Some projects may take on added value be...

Question 15

Which of the following offers the most plausible scenario for a firm that maintained a constant degree of operating leverage when its level of fixed costs doubled?

Accepted Answer

A)   depreciation expense increased
B)   variable cost percentage decreased
C)   sales revenues declined
D)   pretax profits decreasedE) None of the above
F) C) and D)

Question 16

The difference between an NPV break-even level of sales and an accounting break-even level of sales is:

Accepted Answer

A)   the consideration of opportunity cost.
B)   the consideration of depreciation expense.
C)   allowing the sales level to vary in response to changes in demand.
D)   the inclusion of income taxes.E) None of the above
F) A) and D)

Question 17

"What-if" questions ask what will happen to a project in various circumstances.

Accepted Answer

A) True 
 B)False  True

Question 18

A 4 year project is estimated to produce a product with the following information: selling price = $57 per unit; variable costs are $32 per unit; fixed costs are $9,000; required return is 12%; initial investment = $18,000.Calculate the financial break-even.

Accepted Answer

A)   597
B)   540
C)   525
D)   490E) A) and C)
F) All of the above

Question 19

Scenario analysis allows managers to look at different and sometimes inconsistent combinations of variables.

Accepted Answer

A) True 
 B)False

Question 20

Fixed costs:

Accepted Answer

A)   are a constant percentage of sales revenues.
B)   vary with the level of depreciation expense.
C)   are constant with changes in the level of output.
D)   are inversely related to the level of output.E) All of the above
F) A) and B)

Exam 10: Project Analysis

What-if analysis can help identify the inputs that are most worth refining before you commit to a project.

Correct AnswerverifiedTrue

The option to abandon a project becomes more valuable as the possible outcomes become more varied.

Correct AnswerverifiedShow Answer

Which of the following techniques may be more appropriate to analyze projects with interrelated variables?

Correct AnswerverifiedShow Answer

What is the maximum percentage of variable costs in relation to sales that a firm could experience and still break even with $5 million revenue,$1 million fixed costs,and $500,000 depreciation?

Correct AnswerverifiedShow Answer

What happens to a firm with high operating leverage when the overall level of sales is very high?

Correct AnswerverifiedShow Answer

Confirm that the percentage change in profits equals DOL times the percentage change in sales.

Correct AnswerverifiedPercent change in pr...View AnswerShow Answer

According to decision-tree analysis,investment projects should be discontinued when:

Correct AnswerverifiedShow Answer

The inputs that are most worth refining before you commit to a project are the ones that have the greatest potential to alter project NPV.

Correct AnswerverifiedShow Answer

If the level of sales is less than that calculated as the NPV break-even level,then the:

Correct AnswerverifiedShow Answer

What is the break-even level of revenues for a firm with $6 million in sales,variable costs of $3.9 million,fixed costs of $1.2 million,and depreciation of $1 million?

Correct AnswerverifiedShow Answer

Beryl expects her sales to increase by 20 percent next year.If this year's sales are $500,000 and the degree of operating leverage (DOL)is 1.4,what is the expected level of operating income (EBIT)for next year if this year's EBIT is $100,000?

Correct AnswerverifiedNext year's EBIT equals (this year's EBIT x20% x 1.4)+ this year's EBIT = ($100,000 x 20% x 1.4)+ $100,000 = $128,000

The break-even level of sales represents the point where:

Correct AnswerverifiedShow Answer

Which of the following capital budgeting proposals is most likely to display a conflict of interests?

Correct AnswerverifiedShow Answer

Why is managerial flexibility important in capital budgeting?

Correct AnswerverifiedSome projects may take on added value be...View AnswerShow Answer

Which of the following offers the most plausible scenario for a firm that maintained a constant degree of operating leverage when its level of fixed costs doubled?

Correct AnswerverifiedShow Answer

The difference between an NPV break-even level of sales and an accounting break-even level of sales is:

Correct AnswerverifiedShow Answer

"What-if" questions ask what will happen to a project in various circumstances.

Correct AnswerverifiedTrue

A 4 year project is estimated to produce a product with the following information: selling price = $57 per unit; variable costs are $32 per unit; fixed costs are $9,000; required return is 12%; initial investment = $18,000.Calculate the financial break-even.

Correct AnswerverifiedShow Answer

Scenario analysis allows managers to look at different and sometimes inconsistent combinations of variables.

Correct AnswerverifiedShow Answer

Fixed costs:

Correct AnswerverifiedShow Answer

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Percent change in pr...
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Next year's EBIT equals (this year's EBIT x20% x 1.4)+ this year's EBIT = ($100,000 x 20% x 1.4)+ $100,000 = $128,000

Correct Answer
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Some projects may take on added value be...
View Answer

Correct Answer
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True

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