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Exam 11: Project Analysis and Evaluationpart Five: Risk and Return

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Question 21

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

A) forecasting
B) combined
C) complex
D) simulation
E) break-even

F) B) and E)
G) None of the above

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Question 22

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Precise Machinery is analyzing a proposed project.The company expects to sell 2,250 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 3 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 amount of the total costs per unit under the worst case scenario?

A) $548.58
B) $551.62
C) $604.16
D) $638.23
E) $640.25

F) D) and E)
G) A) and E)

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Question 23

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As the degree of sensitivity of a project to a single variable rises,the:

Sensitivity analysis determines the:

The CFO of Edward's Food Distributors is continually receiving capital funding requests from its division managers.These requests are seeking funding for positive net present value projects.The CFO continues to deny all funding requests due to the financial situation of the company.Apparently,the company is:

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

Wexford Industrial Supply is considering a new project with estimated depreciation of $26,000,fixed costs of $79,000,and total sales of $187,000.The variable costs per unit are estimated at $11.80.What is the accounting break-even level of production?

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.

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?

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

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?

Which one of the following statements concerning variable costs is correct?

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

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:

A project has a payback period that exactly equals the project's life.The project is operating at:

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?

Scenario analysis is defined as the:

Operating leverage is the degree of dependence a firm places on its:

At a production level of 4,500 units,a project has total costs of $107,000.The variable cost per unit is $12.50.Assume the firm can increase production by 1,000 units without increasing its fixed costs.What will the total costs be if 4,800 units are produced?

Forecasting risk is defined as the possibility that: