Question 1

The Alfonso Company is analyzing a project with expected sales of 4,000 units, give or take 5 percent. The expected variable cost per unit is $9 and the expected total fixed costs are $17,000. Cost estimates are considered accurate within a plus or minus 2 percent range. The depreciation expense is $3,000. The sale price is estimated at $18 a unit, give or take 5 percent. Sensitivity analysis is based on the most likely scenario.

What is the amount of the total variable costs under the best case scenario?

Accepted Answer

The answer of The Alfonso Company is analyzing a project...

Question 2

A proposed project has fixed costs of $3,700, depreciation expense of $1,400, and a sales quantity of 1,500 units. What is the contribution margin if the projected level of sales is the accounting break-even point?

Accepted Answer

At the accounting break-even point, total revenues equal total expenses, which include both fixed costs and depreciation. The formula to find the contribution margin (CM) at this point is: CM = (Fixed Costs + Depreciation) / Sales Quantity. Plugging in the given values: CM = ($3,700 + $1,400) / 1,500 = $5,100 / 1,500 = $3.40.

Question 3

A project requires an initial investment of $10,000, straight-line depreciable to zero over four years. The discount rate is 10%. Your tax bracket is 34% and you receive a tax credit for negative earnings in the year in which the loss occurs. Additional information for variables with forecast error are shown below.  What is the best case NPV for the project?

Accepted Answer

The answer of A project requires an initial investment of...

Question 4

A firm has fixed costs of $30,000 per year, depreciation of $10,000 per year, a price per unit of $50, and an accounting break-even point of 2,000 units. What is the firm's marginal cost at the accounting break-even point?

Accepted Answer

The answer of A firm has fixed costs of $30,000...

Question 5

The Franklin Co. is analyzing a proposed project. The company expects to sell 3,500 units, give or take 15 percent. The expected variable cost per unit is $6 and the expected fixed costs are $15,500. Cost estimates are considered accurate within a plus or minus 5 percent range. The depreciation expense is $6,000. The sales price is estimated at $21 a unit, give or take 3 percent. The company bases their sensitivity analysis on the base case scenario

What is the amount of the fixed cost per unit under the best case scenario?

Accepted Answer

The answer of The Franklin Co. is analyzing a proposed...

Question 6

DJ Studios is considering opening a new location. This location is estimated to bring in sales of $398,000 a year with total variable costs of $62,000, total fixed costs of $274,500, and estimated unit sales of 1,200. The depreciation expense is $18,900 a year. What is the contribution margin per unit?

Accepted Answer

The answer of DJ Studios is considering opening a new...

Question 7

What is the operating cash flow for a sensitivity analysis using total fixed costs of $26,000?

Accepted Answer

The answer of What is the operating cash flow for...

Question 8

Sam is offering a new product which has a variable cost per unit of $26.08 and total fixed costs of $42,714. What is the selling price of this product if the cash break-even quantity is 6,300 units?

Accepted Answer

The answer of Sam is offering a new product which...

Question 9

A project has an accounting break-even point of 2,000 units. The fixed costs are $4,200 and the depreciation expense is $400. The projected variable cost per unit is $23.10. What is the projected sales price?

Accepted Answer

The accounting break-even point is calculated as the point where total revenue equals total costs (which include fixed costs, variable costs, and depreciation). To find the sales price per unit, we use the formula: Sales Price = (Fixed Costs + Depreciation + (Variable Cost per Unit * Break-Even Quantity)) / Break-Even Quantity. Plugging in the given values: Sales Price = ($4,200 + $400 + ($23.10 * 2,000)) / 2,000 = $25.40.

Question 10

Taylor and Ashcroft is reviewing a new product with labour cost of $16.40 per unit, raw materials cost of $41.65 a unit, and fixed costs of $164,000 a year. Sales are projected at 85,000 units per year over the 3-year life of the product. What is the amount of the total variable costs per year?

Accepted Answer

The answer of Taylor and Ashcroft is reviewing a new...

Question 11

What is the operating cash flow for a sensitivity analysis using total fixed costs of $20,000?

Accepted Answer

Operating cash flow in a sensitivity analysis can be calculated using various inputs, including total fixed costs, sales, variable costs, and possibly other factors. Without specific details on revenue, variable costs, and other relevant financial metrics, it's not possible to accurately determine the operating cash flow from the information provided. However, if option C is marked as correct, it implies there was enough information given in a specific scenario to calculate the operating cash flow as $23,950.

Question 12

A proposed project has fixed costs of $2,401.50, depreciation expense of $800, and a sales quantity of 950 units. What is the contribution margin if the projected level of sales is the accounting break-even point?

Accepted Answer

The contribution margin is the difference between the selling price per unit and the variable cost per unit. At the accounting break-even point, the total contribution margin equals the fixed costs. Therefore, the contribution margin per unit is equal to the fixed costs divided by the sales quantity. In this case, the contribution margin per unit is $2,401.50 / 950 = $3.37.

Question 13

At a production level of 11,200 units a project has total costs of $138,000. The variable cost per unit is $9.84. What is the amount of the total fixed costs if the production level is increased to 14,000 units? The firm currently has sufficient fixed assets to reach this level of production.

Accepted Answer

$27,792To find the total fixed costs, first calculate the total variable costs at the initial production level (11,200 units) by multiplying the variable cost per unit ($9.84) by the number of units (11,200), which equals $110,208. Subtract this from the total costs at that production level ($138,000) to find the fixed costs: $138,000 - $110,208 = $27,792. Fixed costs do not change with the level of production, so the total fixed costs remain $27,792 even if production increases to 14,000 units.

Question 14

At a production level of 5,600 units a project has total costs of $89,000. The variable cost per unit is $11.20. What is the amount of the total fixed costs if the production level is increased to 6,100 units without increasing the total fixed assets?

Accepted Answer

To find the total fixed costs, first calculate the total variable costs at the initial production level of 5,600 units. The variable cost per unit is $11.20, so the total variable costs are $11.20 * 5,600 = $62,720. Subtract this from the total costs at that production level to find the fixed costs: $89,000 - $62,720 = $26,280. Fixed costs do not change with the level of production, so the total fixed costs remain $26,280 even if the production level is increased to 6,100 units.

Question 15

The Quick Producers Co. is analyzing a proposed project. The company expects to sell 10,000 units, give or take 5 percent. The expected variable cost per unit is $6 and the expected fixed cost is $29,000. The fixed and variable cost estimates are considered accurate within a plus or minus 4 percent range. The depreciation expense is $25,000. The tax rate is 34 percent. The sale price is estimated at $13 a unit, give or take 6 percent.

What is the earnings before interest and taxes under the base case scenario?

Accepted Answer

The base case scenario involves calculating the earnings before interest and taxes (EBIT) using the expected values. Revenue is calculated as 10,000 units * $13 = $130,000. Variable costs are 10,000 units * $6 = $60,000. Fixed costs are $29,000. Depreciation is $25,000. EBIT = Revenue - Variable Costs - Fixed Costs - Depreciation = $130,000 - $60,000 - $29,000 - $25,000 = $16,000.

Question 16

TD, Inc. is analyzing a new project. The data they have gathered to date is as follows:   What are the annual sales under the best-case scenario?

Accepted Answer

The answer of TD, Inc. is analyzing a new project....

Question 17

The company is conducting a sensitivity analysis on the sales price using a sales price estimate of $19. Using this value, the earnings before interest and taxes will be:

Accepted Answer

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Question 18

The company conducts a sensitivity analysis using a variable cost of $8.90 per unit. The total variable costs given this estimate are:

Accepted Answer

Given a variable cost of $8.90 per unit, to find the total variable costs, we need to know the number of units. However, without the specific number of units, we can't directly calculate the total variable costs. The correct answer (C) $35,600, suggests that there was a specific number of units considered in the calculation. Assuming the total variable costs are correct at $35,600 with a variable cost of $8.90 per unit, we can reverse-engineer the number of units: $35,600 / $8.90 per unit = 4,000 units. This implies that the scenario is based on producing and selling 4,000 units.

Question 19

A project requires an initial investment of $10,000, straight-line depreciable to zero over four years. The discount rate is 10%. Your tax bracket is 34% and you receive a tax credit for negative earnings in the year in which the loss occurs. Additional information for variables with forecast error are shown below.  What is the worst case NPV for the project?

Accepted Answer

The answer of A project requires an initial investment of...

Question 20

BASIC INFORMATION: A three-year project will cost $60,000 to construct. This will be depreciated straight-line to zero over the three-year life. The price per unit sold is $20 and the variable cost per unit sold is $10. Fixed costs are $30,000 per year.

Using the BASIC INFORMATION only, if you expect to sell 7,000 units per year, what is the OCF in year 2 assuming a required return of 15% and a tax rate of 30%?

Accepted Answer

The Operating Cash Flow (OCF) can be calculated using the formula: OCF = (Sales - Costs - Depreciation) * (1 - Tax Rate) + Depreciation. Sales = 7,000 units * $20/unit = $140,000. Costs = 7,000 units * $10/unit + $30,000 fixed costs = $100,000. Depreciation = $60,000 / 3 years = $20,000. Thus, OCF = ($140,000 - $100,000 - $20,000) * (1 - 0.30) + $20,000 = $34,000.

Quiz 11: Project Analysis and Evaluation

A proposed project has fixed costs of $3,700, depreciation expense of $1,400, and a sales quantity of 1,500 units. What is the contribution margin if the projected level of sales is the accounting break-even point?

A firm has fixed costs of $30,000 per year, depreciation of $10,000 per year, a price per unit of $50, and an accounting break-even point of 2,000 units. What is the firm's marginal cost at the accounting break-even point?

What is the operating cash flow for a sensitivity analysis using total fixed costs of $26,000?

Sam is offering a new product which has a variable cost per unit of $26.08 and total fixed costs of $42,714. What is the selling price of this product if the cash break-even quantity is 6,300 units?

A project has an accounting break-even point of 2,000 units. The fixed costs are $4,200 and the depreciation expense is $400. The projected variable cost per unit is $23.10. What is the projected sales price?

Taylor and Ashcroft is reviewing a new product with labour cost of $16.40 per unit, raw materials cost of $41.65 a unit, and fixed costs of $164,000 a year. Sales are projected at 85,000 units per year over the 3-year life of the product. What is the amount of the total variable costs per year?

What is the operating cash flow for a sensitivity analysis using total fixed costs of $20,000?

A proposed project has fixed costs of $2,401.50, depreciation expense of $800, and a sales quantity of 950 units. What is the contribution margin if the projected level of sales is the accounting break-even point?

At a production level of 11,200 units a project has total costs of $138,000. The variable cost per unit is $9.84. What is the amount of the total fixed costs if the production level is increased to 14,000 units? The firm currently has sufficient fixed assets to reach this level of production.

At a production level of 5,600 units a project has total costs of $89,000. The variable cost per unit is $11.20. What is the amount of the total fixed costs if the production level is increased to 6,100 units without increasing the total fixed assets?

TD, Inc. is analyzing a new project. The data they have gathered to date is as follows: What are the annual sales under the best-case scenario?

The company is conducting a sensitivity analysis on the sales price using a sales price estimate of $19. Using this value, the earnings before interest and taxes will be:

The company conducts a sensitivity analysis using a variable cost of $8.90 per unit. The total variable costs given this estimate are: