Deck 11: Project Analysis and Evaluation

Question 1

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

A) The pessimistic case scenario determines the maximum loss, in current dollars, that a firm could possibly incur from a given project.
B) Scenario analysis defines the entire range of results that could be realized from a proposed investment project.
C) Scenario analysis determines which variable has the greatest impact on a project's final outcome.
D) Scenario analysis helps managers analyze various outcomes that are possible given reasonable ranges for each of the assumptions.
E) Management is guaranteed a positive outcome for a project when the worst-case scenario produces a positive NPV.

Answer 1

Scenario analysis helps managers analyze various outcomes that are possible given reasonable ranges for each of the assumptions.

Question 2

Forecasting risk is defined as the possibility that:

A) some proposed projects will be rejected.
B) some proposed projects will be temporarily delayed.
C) incorrect decisions will be made due to erroneous cash flow projections.
D) some projects will be mutually exclusive.
E) tax rates could change over the life of a project.

Answer 2

incorrect decisions will be made due to erroneous cash flow projections.

Question 3

Variable costs can be defined as the costs that:

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

Answer 3

vary directly with sales.

Question 4

Scenario analysis is best suited to accomplishing which one of the following when analyzing a project?

A) Determining how fixed costs affect NPV
B) Estimating the residual value of fixed assets
C) Identifying the potential range of reasonable outcomes
D) Determining the minimal level of sales required to break-even on an accounting basis
E) Determining the minimal level of sales required to break-even on a financial basis

Question 5

A firm's managers realize they cannot monitor all aspects of their projects but do want to maintain a constant focus on the key aspect of each project in an attempt to maximize their firm's value. Given this specific desire, which type of analysis should they require for each project and why?

A) Sensitivity analysis; to identify the key variable that affects a project's profitability
B) Scenario analysis; to guarantee each project will be profitable
C) Cash breakeven; to ensure the firm recoups its initial investment
D) Accounting breakeven; to ensure each project earns its required rate of return
E) Financial breakeven; to ensure each project has a positive NPV

Question 6

Combining scenario analysis with sensitivity analysis can yield a crude form of ________ analysis.

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

Question 7

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

A) Scenario
B) Simulation
C) Break-even
D) Sensitivity
E) Cash flow

Question 8

Steve is fairly cautious when analyzing a new project and thus he projects the most optimistic, the most realistic, and the most pessimistic outcome that can reasonably be expected. Which type of analysis is he using?

A) Simulation testing
B) Sensitivity analysis
C) Break-even analysis
D) Rationing analysis
E) Scenario analysis

Question 9

When you assign the lowest anticipated sales price and the highest anticipated costs to a project, you are analyzing the project under the condition known as:

A) best-case sensitivity analysis.
B) worst-case sensitivity analysis.
C) best-case scenario analysis.
D) worst-case scenario analysis.
E) base-case scenario analysis.

Question 10

Assume you graph a project's net present value given various sales quantities. Which one of the following is correct regarding the resulting function?

A) The steepness of the function relates to the project's degree of operating leverage.
B) The steeper the function, the less sensitive the project is to changes in the sales quantity.
C) The resulting function will be a hyperbole.
D) The resulting function will include only positive values.
E) The slope of the function measures the sensitivity of the net present value to a change in sales quantity.

Question 11

Scenario analysis is defined as the:

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.

Question 12

The key means of defending against forecasting risk is to:

A) rely primarily on the net present value method of analysis.
B) increase the discount rate assigned to a project.
C) shorten the life of a project.
D) identify sources of value within a project.
E) ignore any potential salvage value that might be realized.

Question 13

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

A) Scenario
B) Break-even
C) Sensitivity
D) Degree of operating leverage
E) Simulation

Question 14

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

A) forecasting
B) scenario
C) sensitivity
D) simulation
E) break-even

Question 15

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

A) less important the variable is to the final outcome of the project.
B) less volatile the project's net present value is to that variable.
C) greater is the importance of accurately predicting the value of that variable.
D) greater is the sensitivity of the project to the other variable inputs.
E) less volatile is the project's outcome.

Question 16

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

A) narrow range of values to a single variable
B) narrow range of values to multiple variables simultaneously
C) wide range of values to a single variable
D) wide range of values to multiple variables simultaneously
E) single value to each of the variables

Question 17

The base case values used in scenario analysis are the values considered to be the most:

A) optimistic.
B) desired by management.
C) pessimistic.
D) likely to create a positive net present value.
E) likely to occur.

Question 18

Which one of the following will be used in the computation of the best-case analysis of a proposed project?

A) Minimal number of units that are expected to be produced and sold
B) The lowest expected salvage value that can be obtained for a project's fixed assets
C) The most anticipated sales price per unit
D) The lowest variable cost per unit that can reasonably be expected
E) The highest level of fixed costs that is actually anticipated

Question 19

Which of the following variables will be forecast at their highest expected level under a best-case scenario?

A) Fixed costs and units value
B) Variable costs and sales price
C) Fixed costs and sales price
D) Salvage value and units sold
E) Initial cost and variable costs

Question 20

Sensitivity analysis determines the:

A) range of possible outcomes given that most variables are reliable only within a stated range.
B) degree to which the net present value reacts to changes in a single variable.
C) net present value range that can be realized from a proposed project.
D) degree to which a project relies on its initial costs.
E) ideal ratio of variable costs to fixed costs for profit maximization.

Question 21

Fixed costs:

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.

Question 22

By definition, which one of the following must equal zero at the accounting break-even point?

A) Net present value
B) Depreciation
C) Contribution margin
D) Net income
E) Operating cash flow

Question 23

Valerie just completed analyzing a project. Her analysis indicates that the project will have a six-year life and require an initial cash outlay of $120,000. Annual sales are estimated at $189,000 and the tax rate is 21 percent. The net present value is negative $120,000. Based on this analysis, the project is expected to operate at the:

A) maximum possible level of production.
B) minimum possible level of production.
C) financial break-even point.
D) accounting break-even point.
E) cash break-even point.

Question 24

A project that has a payback period exactly equal to the project's life is operating at:

A) its maximum capacity.
B) the financial break-even point.
C) the cash break-even point.
D) the accounting break-even point.
E) a zero level of output.

Question 25

Which of the following are inversely related to variable costs per unit?

A) Sales quantity and sales price
B) Net profit per unit and sales quantity
C) Operating cash flow and sales quantity
D) Operating cash flow per unit and contribution margin per unit
E) Contribution margin per unit and marginal costs

Question 26

When the operating cash flow of a project is equal to zero, the project is operating at the:

A) maximum possible level of production.
B) minimum possible level of production.
C) financial break-even point.
D) accounting break-even point.
E) cash break-even point.

Question 27

Which of the following values will be equal to zero when a firm is operating at the accounting break-even level of output?

A) IRR and OCF
B) Net income and contribution margin
C) IRR and net income
D) OCF and NPV
E) Net income and NPV 

Question 28

Which one of these combinations must increase the contribution margin?

A) Increasing both the sales price and the variable cost per unit
B) Increasing the sales quantity and increasing the variable cost per unit
C) Decreasing the sales price and increasing the sales quantity
D) Decreasing both fixed costs and depreciation expense
E) Increasing the sales price and decreasing the variable cost per unit

Question 29

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:

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.

Question 30

A project that has a projected IRR of negative 100 percent will also have a(n):

A) discounted payback period equal to the life of the project.
B) operating cash flow that is positive and equal to the depreciation.
C) net present value that is negative and equal to the initial investment.
D) payback period that is exactly equal to the life of the project.
E) net present value that is equal to zero.

Question 31

You would like to know the minimum level of sales that is needed for a project to be accepted based on its net present value. To determine that sales level you should compute the:

A) contribution margin per unit and set that margin equal to the fixed costs per unit.
B) degree of operating leverage at the current sales level.
C) accounting break-even point.
D) cash break-even point.
E) financial break-even point.

Question 32

The change in variable costs that occurs when production is increased by one unit is referred to as the:

A) marginal cost.
B) average cost.
C) total cost.
D) scenario cost.
E) net cost.

Question 33

The contribution margin per unit is equal to the:

A) sales price per unit minus the total costs per unit.
B) variable cost per unit minus the fixed cost per unit.
C) sales price per unit minus the variable cost per unit.
D) pretax profit per unit.
E) aftertax profit per unit.

Question 34

Which one of the following characteristics relates to the cash break-even point for a given project?

A) The project never pays back.
B) The discounted payback period equals the project's life.
C) The NPV is equal to zero.
D) The IRR equals the required rate of return.
E) The OCF is equal to the depreciation expense.

Question 35

Which one of these is most associated with an IRR of negative 100 percent?

A) Degree of operating leverage
B) Accounting break-even point
C) Contribution margin
D) Simulation analysis
E) Cash break-even point

Question 36

Which one of the following represents the level of output where a project produces a rate of return just equal to its requirement?

A) Capital break-even
B) Cash break-even
C) Accounting break-even
D) Financial break-even
E) Internal break-even

Question 37

The president of Global Wholesalers would like to offer special sale prices to the firm's best customers under the following terms:
1) The prices will apply only to units purchased in excess of the quantity normally purchased by a customer.
2) The units purchased must be paid for in cash at the time of sale.
3) The total quantity sold under these terms cannot exceed the excess capacity of the firm.
4) The net profit of the firm should not be affected.
5) The prices will be in effect for one week only.
Given these conditions, the special sale price should be set equal to the:

A) average variable cost of materials only.
B) average cost of all variable inputs.
C) sensitivity value of the variable costs.
D) marginal cost of materials only.
E) marginal cost of all variable inputs.

Question 38

Steve, the sales manager for TL Products, wants to sponsor a one-week "Customer Appreciation Sale" where the firm offers to sell additional units of a product at the lowest price possible without negatively affecting the firm's profits. Which one of the following represents the price that should be charged for the additional units during this sale?

A) Average variable cost
B) Average total cost
C) Average total revenue
D) Marginal revenue
E) Marginal cost

Question 39

The change in revenue that occurs when one more unit of output is sold is referred to as:

A) marginal revenue.
B) average revenue.
C) total revenue.
D) erosion.
E) scenario revenue.

Question 40

A decrease in which one of the following will increase the accounting break-even quantity? Assume straight-line depreciation is used and ignore taxes.

A) Sales price per unit
B) Management salaries
C) Variable labor costs per unit
D) Initial fixed asset purchases
E) Fixed costs

Question 41

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) financial rejection.
B) project rejection.
C) soft rationing.
D) marginal rationing.
E) capital rationing.

Question 42

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

Question 43

The degree of operating leverage is equal to:

A) 1 + OCF/(FC + VC).
B) 1 + OCF/FC.
C) 1 + FC/OCF.
D) 1 + VC/OCF.
E) 1 − (FC + VC)/OCF.

Question 44

By definition, which one of the following must equal zero at the cash break-even point?

A) Net present value
B) Internal rate of return
C) Contribution margin
D) Net income
E) Operating cash flow

Question 45

You are considering a project and are concerned about the reliability of the cash flow forecasts. To reduce any potentially harmful results from accepting this project, you should consider:

A) lowering the degree of operating leverage.
B) lowering the contribution margin per unit.
C) increasing the initial cash outlay.
D) increasing the fixed costs per unit.
E) lowering the operating cash flow.

Question 46

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

A) Degree of sensitivity
B) Degree of operating leverage
C) Accounting break-even
D) Cash break-even
E) Contribution margin

Question 47

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

A) variable costs.
B) fixed costs.
C) sales.
D) operating cash flows.
E) depreciation tax shield.

Question 48

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

A) Hiring additional employees rather than using temporary outside contractors
B) Subcontracting portions of the project rather than purchasing new equipment to do all the work in-house
C) Buying equipment rather than leasing it short-term
D) Lowering the projected selling price per unit
E) Changing the proposed labor-intensive production method to a more capital intensive method

Question 49

Precise Machinery is analyzing a proposed project that is expected to have sales of 2,450 units, ±8 percent. The expected variable cost per unit is $246 and the expected fixed costs are $309,000. Cost estimates are considered accurate within a ±3 percent range. The depreciation expense is $106,000. The sales price is estimated at $599 per unit, ±2 percent. What is the amount of the total costs per unit under the worst-case scenario?

A) $448.58
B) $404.16
C) $366.67
D) $338.23
E) $394.58

Question 50

Assume both the discount and tax rates are positive values. At the financial break-even point, the:

A) payback period equals the project's life.
B) NPV is negative.
C) OCF is zero.
D) contribution margin per unit equals the fixed costs per unit.
E) IRR equals the required return.

Question 51

Precise Machinery is analyzing a proposed project. The company expects to sell 7,500 units, ±10 percent. The expected variable cost per unit is $314 and the expected fixed costs are $647,000. Cost estimates are considered accurate within a ±4 percent range. The depreciation expense is $187,000. The sales price is estimated at $849 per unit, give or take 2 percent. The tax rate is 21 percent. The company is conducting a sensitivity analysis on the sales price using a sales price estimate of $850. What is the operating cash flow based on this analysis?

A) $2,703,940
B) $2,293,089
C) $1,986,675
D) $2,354,874
E) $2,284,837

Question 52

New Town Instruments is analyzing a proposed project. The company expects to sell 1,600 units, ±3 percent. The expected variable cost per unit is $220 and the expected fixed costs are $438,000. Cost estimates are considered accurate within a ±2 percent range. The depreciation expense is $64,000. The sales price is estimated at $647 per unit, ±2 percent. What is the sales revenue under the worst-case scenario?

A) $1,086,825
B) $896,201
C) $984,061
D) $1,014,496
E) $932,017

Question 53

Assume a project has a discounted payback that equals the project's life. The project's sales quantity must be at which one of these break-even points?

A) Accounting
B) Leveraged
C) Marginal
D) Cash
E) Financial

Question 54

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

A) financial deferral.
B) financial allocation.
C) capital allocation.
D) marginal rationing.
E) hard rationing.

Question 55

Theresa is analyzing a project that currently has a projected NPV of zero. Which one of the following changes that she is considering is most apt to cause that project to produce a positive NPV instead? Consider each change independently.

A) Decrease the sales price
B) Increase the materials cost per unit
C) Decrease the labor hours per unit produced
D) Decrease the sales quantity
E) Increase the amount of the initial investment in net working capital

Question 56

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:

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

Question 57

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

A) marginal spending.
B) capital preservation.
C) soft rationing.
D) hard rationing.
E) marginal rationing.

Question 58

Uptown Promotions has three divisions. As part of the planning process, the CFO requested that each division submit its capital budgeting proposals for next year. These proposals represent positive net present value projects that fall within the long-range plans of the firm. The requests from the divisions are $4.2 million, $3.1 million, and $6.8 million. For the firm as a whole, management has limited spending to $10 million for new projects next year even though the firm could afford additional investments. This is an example of:

A) scenario analysis.
B) sensitivity analysis.
C) an operating leverage application.
D) soft rationing.
E) hard rationing.

Question 59

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

A) High variable costs relative to the fixed costs
B) Relatively high initial cash outlay
C) OCF that is highly sensitive to the sales quantity
D) High level of forecasting risk
E) High depreciation expense

Question 60

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:

A) operating at the accounting break-even point.
B) operating at the financial break-even point.
C) facing hard rationing.
D) operating with zero leverage.
E) operating at maximum capacity.

Question 61

Windows and More is reviewing a project with sales of 6,200 units, ±2 percent, at a sales price of $29, ±1 percent, per unit. The expected variable cost per unit is $11, ±3 percent, and the expected fixed costs are $87,000, ±1 percent. The depreciation expense is $68,000 and the tax rate is 21 percent. What is the net income under the worst-case scenario?

A) −$38,578
B) −$39,713
C) $15,846
D) -$28,704
E) $4,696

Question 62

Wexford Industrial Supply is considering a new project with estimated depreciation of $38,200, fixed costs of $84,600, and total sales of $211,000 at the accounting break-even level. The variable costs per unit are estimated at $9.64. What is the accounting break-even level of production?

A) 6,871 units
B) 9,333 units
C) 10,415 units
D) 9,149 units
E) 7,248 units

Question 63

A project has base-case earnings before interest and taxes of $36,408, fixed costs of $42,700, a selling price of $24 a unit, and a sales quantity of 22,000 units. All estimates are accurate within ±2 percent. Depreciation is $16,700. What is the base-case variable cost per unit?

A) $22.16
B) $23.84
C) $19.65
D) $22.23
E) $17.18

Question 64

At a production level of 5,280 units, a project has total costs of $150,000. The variable cost per unit is $23.12. Assume the firm can increase production by 750 units without increasing its fixed costs. What will the total costs be if 6,000 units are produced?

A) $122,780
B) $124,640
C) $138,720
D) $122,074
E) $166,646

Question 65

A project has expected sales of 54,000 units, ±5 percent, variable cost per unit of $87, ±2 percent, fixed costs of $287,000, ±1 percent, and a sales price per unit of $219, ±2 percent. The depreciation expense is $47,000 and the tax rate is 23 percent. What is the contribution margin per unit for a sensitivity analysis using a variable cost per unit of $85?

A) $132
B) $134
C) $135
D) $136
E) $133

Question 66

Precise Machinery is analyzing a proposed project that is expected to sell 1,450 units, ±3 percent. The expected variable cost per unit is $139 and the expected fixed costs are $123,000. Cost estimates are considered accurate within a ±1 percent range. The depreciation expense is $39,000. The sales price is estimated at $349 per unit, ±3 percent. What is the contribution margin per unit under the best-case scenario?

A) $137.03
B) $194.33
C) $148.13
D) $187.42
E) $221.86

Question 67

Shoe Supply has decided to produce a new line of shoes that will have a selling price of $68 and a variable cost of $27 per pair. The company spent $187,000 for a marketing study that determined the company should sell 85,000 pairs of the new shoes each year for three years. The marketing study also determined that the company will lose sales of 24,000 pairs of its high-priced shoes that sell for $129 and have variable costs of $63 a pair. The company will also increase sales of its inexpensive shoes by 19,000 pairs. The inexpensive shoes sell for $39 and have variable costs of $15 per pair. The fixed costs each year will be $1.42 million. The company has also spent $1.29 million on research and development for the new shoes. The initial fixed asset requirement is $4.2 million and will be depreciated on a straight-line basis over the life of the project. The new shoes will also require an increase in net working capital of $447,000 that will be returned at the end of the project. Sales and cost projections have a ±2 percent range. The tax rate is 21 percent, and the cost of capital is 12 percent. What is the NPV for the new line of shoes assuming the base-case scenario?

A) −$1,844,788
B) −$806,318
C) $102,311
D) $687,415
E) $520,909

Question 68

Your company is reviewing a project with estimated labor costs of $14.68 per unit, estimated raw material costs of $43.18 a unit, and estimated fixed costs of $18,000 a month. Sales are projected at 15,500 units, ±5 percent, over the one-year life of the project. Cost estimates are accurate within a range of ±3 percent. What are the total variable costs for the best-case scenario?

A) $869,925
B) $861,560
C) $913,421
D) $951,960
E) $891,960

Question 69

Stellar Plastics is analyzing a proposed project with annual depreciation of $28,750 and a tax rate of 23 percent. The company expects to sell 16,500 units, ±3 percent. The expected variable cost per unit is $1.87, ±1 percent, and the expected fixed costs are $24,900, ±1 percent. The sales price is estimated at $7.99 a unit, ±2 percent. What is the operating cash flow for a sensitivity analysis using total fixed costs of $26,000?

A) $54,208
B) $64,347
C) $63,591
D) $62,408
E) $60,540

Question 70

You are considering a new product launch. The project will have an initial cost for fixed assets of $1,150,000, a three-year life, and no salvage value; depreciation is straight-line to zero. Sales are projected at 230 units per year, price per unit will be $7,500, variable cost per unit will be $3,900, and fixed costs will be $122,000 per year. The required return is 14.5 percent and the relevant tax rate is 24 percent. Based on your experience, you think the unit sales and price are accurate within a ±2 percent range while costs may vary by ±3 percent. What is the worst-case NPV?

A) −$117,907
B) $156,446
C) −$78,517
D) $162,134
E) −$118,020

Question 71

Consider a 5-year project with an initial fixed asset investment of $324,000, straight-line depreciation to zero over the project's life, a zero salvage value, a selling price of $34, variable costs of $17, fixed costs of $189,700, a sales quantity of 94,000 units, and a tax rate of 21 percent. What is the sensitivity of OCF to changes in the sales price?

A) $74,260 per $1 of sales
B) $61,600 per $1 of sales
C) $78,700 per $1 of sales
D) $59,470 per $1 of sales
E) $68,850 per $1 of sales

Question 72

The Creamery is analyzing a project with expected sales of 5,700 units, ±5 percent. The expected variable cost per unit is $168 and the expected fixed costs are $424,000. Cost estimates are considered accurate within a ±3 percent range. The depreciation expense is $156,000. The sales price is estimated at $339 per unit, ±5 percent. The tax rate is 21 percent. The company is conducting a sensitivity analysis with fixed costs of $425,000. What is the OCF given this analysis?

A) $416,511
B) $385,350
C) $467,023
D) $394,874
E) $421,300

Question 73

A project has an accounting break-even point of 7,264 units. The fixed costs are $164,800 and the projected variable cost per unit is $24.57. The project will require $398,000 for fixed assets which will be depreciated straight-line to zero over the project's four-year life. What is the projected sales price per unit?

A) $56.59
B) $58.18
C) $64.02
D) $76.67
E) $60.95

Question 74

At the accounting break-even point, Swiss Mountain Gear sells 22,940 ski masks at a price of $19 each. At this level of production, the depreciation is $67,000 and the variable cost per unit is $6. What is the amount of the fixed costs at this production level?

A) $231,220
B) $259,400
C) $161,330
D) $187,660
E) $145,600

Question 75

The accounting break-even production quantity for a project is 18,311 units. The fixed costs are $148,400 and the contribution margin per unit is $13.10. The fixed assets required for the project will be depreciated on straight-line basis to zero over the project's 4-year life. What is the amount of fixed assets required for this project?

A) $535,592
B) $365,896
C) $448,500
D) $332,400
E) $429,600

Question 76

Assume a project has a sales quantity of 7,400 units, ±6 percent and a sales price of $59 a unit, ±1 percent. The expected variable cost per unit is $13, ±3 percent, and the expected fixed costs are $214,000, ±2 percent. The depreciation expense is $63,000 and the tax rate is 23 percent. What is the operating cash flow under the best-case scenario?

A) $136,759
B) $118,470
C) $145,705
D) $134,208
E) $124,220

Question 77

A proposed project has fixed costs of $39,480, depreciation expense of $8,724, and a sales quantity of 1,330 units. The total variable costs are $5,607. What is the contribution margin per unit if the projected level of sales is the accounting break-even point?

A) $37.81
B) $34.63
C) $36.24
D) $35.16
E) $38.13

Question 78

The Metal Shop produces 1.7 million metal fasteners a year for industrial use. At this level of production, its total fixed costs are $486,000 and its total costs are $791,000. The firm can increase its production by 5 percent, without increasing either its total fixed costs or its variable costs per unit. A customer has made a one-time offer for an additional 50,000 units at a price per unit of $.165. Should the firm sell the additional units at the offered price? Why or why not?

A) Yes; The offered price is less than the marginal cost.
B) Yes; The offered price is equal to the marginal cost.
C) No; The offered price is less than the marginal cost.
D) Yes; The offered price is greater than the marginal cost.
E) No; The offered price is greater than the marginal cost.

Question 79

HiLo Mfg. is analyzing a project with anticipated sales of 12,500 units, ±2 percent. The variable cost per unit is $13, ± 2 percent, and the expected fixed costs are $237,000, ±1 percent. The sales price is estimated at $69 a unit, ±3 percent. The depreciation expense is $68,000 and the tax rate is 22 percent. What is the earnings before interest and taxes under the base-case scenario?

A) $368,500
B) $421,000
C) $395,000
D) $414,900
E) $427,500

Question 80

A suggested project requires initial fixed assets of $227,000, has a life of 4 years, and has no salvage value. Assume depreciation is straight-line to zero over the life of the project. Sales are projected at 31,000 units per year, the price per unit is $47, variable cost per unit is $23, and fixed costs are $842,900 per year. The tax rate is 23 percent and the required return is 11.5 percent. Suppose the projections given for price and quantity can vary by ±4 percent while variable and fixed cost estimates are accurate to within ±2 percent. What is the best-case NPV?

A) $4,613
B) −$67,008
C) $127,511
D) $82,409
E) −$132,194