Question 1

Tucker's Trucking is considering a project with a discounted payback period just equal to the project's life.The projections include a sales price of $38,variable cost per unit of $18.50,and fixed costs of $32,000.The operating cash flow is $19,700.What is the break-even quantity?

Accepted Answer

A)  631 units
B)  1,211 units
C)  1,641 units
D)  2,301 units
E)  2,651 unitsF) B) and C)
G) A) and E)

Question 2

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

Accepted Answer

A)  forecasting
B)  combined
C)  complex
D)  simulation
E)  break-evenF) A) and B)
G) B) and E)

Question 3

Scenario analysis is defined as the:

Accepted Answer

A)  determination of the initial cash outlay required to implement a project.
B)  determination of changes in NPV estimates when what-if questions are posed.
C)  isolation of the effect that a single variable has on the NPV of a project.
D)  separation of a project's sunk costs from its opportunity costs.
E)  analysis of the effects that a project's terminal cash flows has on the project's NPV.F) D) and E)
G) All of the above

Question 4

Fixed costs:

Accepted Answer

A)  change as a small quantity of output produced changes.
B)  are constant over the short-run regardless of the quantity of output produced.
C)  are defined as the change in total costs when one more unit of output is produced.
D)  are subtracted from sales to compute the contribution margin.
E)  can be ignored in scenario analysis since they are constant over the life of a project.F) A) and D)
G) B) and E)

Question 5

Variable costs can be defined as the costs that:

Accepted Answer

A)  remain constant for all time periods.
B)  remain constant over the short run.
C)  vary directly with sales.
D)  are classified as non-cash expenses.
E)  are inversely related to the number of units sold.F) A) and B)
G) A) and C) C

Question 6

You are in charge of a project that has a degree of operating leverage of 2.64.What will happen to the operating cash flows if the number of units you sell increase by 4 percent?

Accepted Answer

A)  15.84 percent decrease
B)  2.27 percent decrease
C)  no change
D)  2.27 percent increase
E)  10.56 percent increaseF) A) and D)
G) B) and C) E

Question 7

Webster Iron Works started a new project last year.As it turns out,the project has been operating at its accounting break-even level of output and is now expected to continue at that level over its lifetime.Given this,you know that the project:

Accepted Answer

A)  will never pay back.
B)  has a zero net present value.
C)  is operating at a higher level than if it were operating at its cash break-even level.
D)  is operating at a higher level than if it were operating at its financial break-even level.
E)  is lowering the total net income of the firm.F) B) and C)
G) C) and D)

Question 8

Brubaker & Goss has received requests for capital investment funds for next year from each of its five divisions.All requests represent positive net present value projects.All projects are independent.Senior management has decided to allocate the available funds based on the profitability index of each project since the company has insufficient funds to fulfill all of the requests.Management is following a practice known as:

Accepted Answer

A)  scenario analysis.
B)  sensitivity analysis.
C)  leveraging.
D)  hard rationing.
E)  soft rationing.F) A) and B)
G) C) and D)

Question 9

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?

Accepted Answer

Forecasting risk is the possibility that...

Question 10

Which type of analysis identifies the variable,or variables,that are most critical to the success of a particular project?

Accepted Answer

A)  leverage
B)  risk
C)  break-even
D)  sensitivity
E)  cash flowF) None of the above
G) B) and E)

Question 11

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?

Accepted Answer

A)  $47.65
B)  $48.18
C)  $54.02
D)  $56.67
E)  $62.50F) B) and E)
G) D) and E)

Question 12

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,give or take 3 percent.What is the net income under the worst case scenario?

Accepted Answer

A)  $8,578
B)  $18,228
C)  $15,846
D)  $20,704
E)  $24,696F) B) and C)
G) D) and E) B

Question 13

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?

Accepted Answer

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

Question 14

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?

Accepted Answer

A)  6,521 units
B)  8,256 units
C)  8,510 units
D)  9,667 units
E)  10,842 unitsF) C) and D)
G) A) and B)

Question 15

Which one of the following types of analysis is the most complex to conduct?

Accepted Answer

A)  scenario
B)  break-even
C)  sensitivity
D)  degree of operating leverage
E)  simulationF) A) and B)
G) D) and E)

Question 16

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

Accepted Answer

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 flowF) A) and E)
G) A) and D)

Question 17

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:

Accepted Answer

A)  financial rejection.
B)  project rejection.
C)  soft rationing.
D)  marginal rationing.
E)  capital rationing.F) C) and D)
G) B) and C)

Question 18

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?

Accepted Answer

A)  $1,686,825
B)  $1,496,250
C)  $1,589,588
D)  $1,593,500
E)  $1,620,675F) B) and E)
G) A) and B)

Question 19

Mountain Gear can manufacture mountain climbing shoes for $15.25 per pair in variable raw material costs and $18.46 per paid in variable labor costs.The shoes sell for $135 per pair.Last year,production was 170,000 pairs and fixed costs were $830,000.What is the minimum acceptable total revenue the company should accept for a one-time order for an extra 10,000 pairs?

Accepted Answer

A)  $149,500
B)  $287,600
C)  $337,100
D)  $380,211
E)  $1,164,100F) C) and E)
G) A) and C)

Question 20

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

Accepted Answer

A)  hiring temporary workers from an employment agency rather than hiring part-time production employees
B)  subcontracting portions of the project rather than purchasing new equipment to do all the work in-house
C)  leasing equipment on a long-term basis rather than buying equipment
D)  lowering the projected selling price per unit
E)  changing the proposed labor-intensive production method to a more capital intensive methodF) All of the above
G) A) and E)

Exam 11: Project Analysis and Evaluation

Tucker's Trucking is considering a project with a discounted payback period just equal to the project's life.The projections include a sales price of $38,variable cost per unit of $18.50,and fixed costs of $32,000.The operating cash flow is $19,700.What is the break-even quantity?

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

Correct Answer
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Scenario analysis is defined as the:

Correct Answer
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Fixed costs:

Correct Answer
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Variable costs can be defined as the costs that:

Correct Answer
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C

You are in charge of a project that has a degree of operating leverage of 2.64.What will happen to the operating cash flows if the number of units you sell increase by 4 percent?

Correct Answer
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E

Webster Iron Works started a new project last year.As it turns out,the project has been operating at its accounting break-even level of output and is now expected to continue at that level over its lifetime.Given this,you know that the project:

Correct Answer
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Correct Answer
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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?

Correct Answer
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Forecasting risk is the possibility that...
View Answer

Which type of analysis identifies the variable,or variables,that are most critical to the success of a particular project?

Correct Answer
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B

Correct Answer
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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?

Correct Answer
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Which one of the following types of analysis is the most complex to conduct?

Correct Answer
verified

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

Correct Answer
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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:

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

Correct Answer
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Exam 11: Project Analysis and Evaluation

Tucker's Trucking is considering a project with a discounted payback period just equal to the project's life.The projections include a sales price of $38,variable cost per unit of $18.50,and fixed costs of $32,000.The operating cash flow is $19,700.What is the break-even quantity?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Scenario analysis is defined as the:

Correct AnswerverifiedShow Answer

Fixed costs:

Correct AnswerverifiedShow Answer

Variable costs can be defined as the costs that:

Correct AnswerverifiedC

You are in charge of a project that has a degree of operating leverage of 2.64.What will happen to the operating cash flows if the number of units you sell increase by 4 percent?

Correct AnswerverifiedE

Webster Iron Works started a new project last year.As it turns out,the project has been operating at its accounting break-even level of output and is now expected to continue at that level over its lifetime.Given this,you know that the project:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedForecasting risk is the possibility that...View AnswerShow Answer

Which type of analysis identifies the variable,or variables,that are most critical to the success of a particular project?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedB

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

Which one of the following types of analysis is the most complex to conduct?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct Answer
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C

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E

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Forecasting risk is the possibility that...
View Answer

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B

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