Question 1

A project has a contribution margin of $6, projected ﬁxed costs of $14,000, projected variable cost per unit of $14, and a projected ﬁnancial break-even point of 6,000 units. What is the operating
Cash ﬂow at this level of output?
A) $22,000
B) $34,000
C) $46,000
D) $62,000
E) $70,000

Accepted Answer

The operating cash flow at the financial break-even point is equal to the contribution margin per unit multiplied by the number of units sold minus the fixed costs. Here, the contribution margin is $6, and the break-even point is 6,000 units, so the operating cash flow is (6,000 units * $6) - $14,000 = $22,000.

Question 2

A proposed project has ﬁxed costs of $3,600, depreciation expense of $1,500, and a sales quantity of 1,300 units. What is the contribution margin if the projected level of sales is the accounting break-
Even point?
A) $3.92
B) $4.14
C) $4.50
D) $4.80
E) $5.00

Accepted Answer

At the accounting break-even point, total revenue equals total costs, which include fixed costs and depreciation. The contribution margin per unit is calculated as (Fixed Costs + Depreciation) / Sales Quantity = ($3,600 + $1,500) / 1,300 = $3.92.

Question 3

A project has an accounting break-even point of 41,400 units. The ﬁxed costs are $198,634 and the depreciation expense is $21,200. The projected variable cost per unit is $41.50. What is the
Projected sales price?
A) $37.07
B) $41.41
C) $42.19
D) $46.81
E) $54.28

Accepted Answer

The accounting break-even point is calculated as Fixed Costs + Depreciation / (Sales Price - Variable Cost). Plugging in the values: $198,634 + $21,200 = 41,400 * (Sales Price - $41.50). Solving for Sales Price gives $46.81.

Question 4

What are the earnings before interest and taxes?
A) $38,000
B) $44,000
C) $50,000
D) $59,500
E) $65,000

Accepted Answer

Earnings before interest and taxes (EBIT) is calculated as revenue minus expenses. In this case, revenue is $100,000 and expenses are $62,000, so EBIT is $100,000 - $62,000 = $38,000.

Question 5

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 are the ﬁrm's total variable costs at the
Accounting break-even point?
A) $40,000
B) $50,000
C) $60,000
D) $70,000
E) $80,000

Accepted Answer

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

Question 6

Magellen Industries is analyzing a new project. The data they have gathered to date is as follows:  Initial requirement for equipment: $120,000 Depreciation: Straight-line to zero over the four-year life of the project with no salvage value.
Required rate of return: 15%
Marginal tax rate: 35%
What is the net present value under the best-case scenario?
A) -$11,664
B) -$7,946
C) $7,946
D) $11,665
E) $37,946

Accepted Answer

The answer of Magellen Industries is analyzing a new project....

Question 7

The accounting break-even production quantity for a project is 6,208 units. The ﬁxed costs are $27,400 and the contribution margin is $5.20. What is the projected depreciation expense?
A) $4,413.66
B) $4,881.60
C) $5,002.50
D) $5,087.30
E) $5,133.33

Accepted Answer

The accounting break-even point is calculated as (Fixed Costs + Depreciation) / Contribution Margin. Solving for Depreciation: 6,208 = ($27,400 + Depreciation) / $5.20. Depreciation = $4,881.60.

Question 8

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 base case NPV for the project?
A) $1,523
B) $4,974
C) $5,247
D) $6,529
E) $8,281

Accepted Answer

To calculate the NPV, we need to first calculate the cash flows for each year.

Year 0: 
Initial investment: -$10,000

Year 1-4: 
Depreciation = $10,000/4 = $2,500 
Tax credit = -$850 (34% of -$2,500) 
Net cash flow = -$2,500 - (-$850) = -$1,650

Discount rate = 10%

Using these cash flows, we can calculate the NPV:

NPV = -$10,000 + ($1,650/(1+0.1)^1) + ($1,650/(1+0.1)^2) + ($1,650/(1+0.1)^3) + ($1,650/(1+0.1)^4)

NPV = -$10,000 + $1,500 + $1,239 + $1,019 + $839 
NPV = $597

However, we also need to consider the forecast errors for variables. Since we do not have specific numbers for the errors, we can use the range given in the table: -15% to +20%.

To calculate the worst-case NPV, we use the bottom end of the range for all variables:

NPV worst-case = -$16,250 + ($1,312.50/(1+0.1)^1) + ($1,312.50/(1+0.1)^2) + ($1,312.50/(1+0.1)^3) + ($1,312.50/(1+0.1)^4) 
NPV worst-case = -$16,250 + $1,192 + $911 + $699 + $537 
NPV worst-case = -$12,911

To calculate the best-case NPV, we use the top end of the range for all variables:

NPV best-case = -$8,500 + ($1,950/(1+0.1)^1) + ($1,950/(1+0.1)^2) + ($1,950/(1+0.1)^3) + ($1,950/(1+0.1)^4) 
NPV best-case = -$8,500 + $1,676 + $1,416 + $1,198 + $1,017 
NPV best-case = $2,207

Therefore, the base case NPV for the project is $597, but the best choice(s) depend on the risk appetite of the investor. If the investor is risk-neutral or risk-seeking, they may choose to invest in the project since even the worst-case NPV is positive. However, if the investor is risk-averse, they may not invest in the project since the worst-case NPV is negative.

Question 9

A ﬁrm is considering a project with a cash break-even point of 13,500 units. The selling price is $13 a unit and the variable cost per unit is $7. What is the projected amount of ﬁxed costs?
A) $64,000
B) $70,500
C) $74,500
D) $78,000
E) $81,000

Accepted Answer

The answer of A ﬁrm is considering a project with...

Question 10

A project has earnings before interest and taxes of $5,750, ﬁxed costs of $50,000, a selling price of $13 a unit, and a sales quantity of 11,500 units. Depreciation is $7,500. What is the variable cost per
Unit?
A) $6.75
B) $7.00
C) $7.25
D) $7.50
E) $7.75

Accepted Answer

The answer of A project has earnings before interest and...

Question 11

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 sales revenue under the worst case scenario?
A) $64,980
B) $68,400
C) $71,820
D) $72,610
E) $75,600

Accepted Answer

The worst-case scenario for sales revenue occurs when both the sales volume and the sale price are at their lowest estimates. The lowest sales volume is 4,000 units minus 5%, which is 3,800 units. The lowest sale price is $18 minus 5%, which is $17.10. Therefore, the sales revenue under the worst-case scenario is 3,800 units * $17.10 = $64,980.

Question 12

A project has earnings before interest and taxes of $6,500, ﬁxed costs of $40,000, a selling price of $12 a unit, and a sales quantity of 10,000 units. Depreciation is $8,500. What is the variable cost per
Unit?
A) $6.25
B) $6.50
C) $6.75
D) $7.00
E) $7.25

Accepted Answer

First, let's calculate the contribution margin per unit:

Selling price per unit - Variable cost per unit = Contribution Margin per unit

Since we don't know the variable cost per unit, we'll leave that as "VC" for now:

$12 - VC = Contribution Margin per unit

Next, let's calculate the total contribution margin:

Contribution Margin per unit x Sales quantity = Total Contribution Margin

($12 - VC) x 10,000 = Total Contribution Margin

$120,000 - 10,000VC = Total Contribution Margin

We know that EBIT (earnings before interest and taxes) is $6,500:

Sales - Variable costs - Fixed costs - Depreciation = EBIT

$120,000 - (VC x 10,000) - $40,000 - $8,500 = $6,500

$71,500 - (VC x 10,000) = $6,500

Subtracting $71,500 from both sides:

- (VC x 10,000) = $6,500 - $71,500
- (VC x 10,000) = -$65,000
- VC = -$65,000 / 10,000
- VC = $6.50

Therefore, the variable cost per unit is $6.50.

Question 13

What is the contribution margin for a sensitivity analysis using a variable cost per unit of $9?
A) $3
B) $4
C) $7
D) $9
E) $13

Accepted Answer

The answer of What is the contribution margin for a...

Question 14

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 ﬁxed cost per unit under the base case scenario?
A) $3.60
B) $3.80
C) $4.00
D) $4.10
E) $4.25

Accepted Answer

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

Question 15

A project has expected sales of 21,000 units at a price of $14.99, variable costs of $9.03, and ﬁxed costs of $58,590. What is the contribution margin per unit?
A) $2.79
B) $3.17
C) $5.96
D) $9.03
E) $14.99

Accepted Answer

The contribution margin per unit is calculated by subtracting the variable cost per unit from the selling price per unit: $14.99 - $9.03 = $5.96.

Question 16

Magellen Industries is analyzing a new project. The data they have gathered to date is as follows:  Initial requirement for equipment: $120,000 Depreciation: Straight-line to zero over the four-year life of the project with no salvage value.
Required rate of return: 15%
Marginal tax rate: 35%
What is the variable cost under the best-case scenario?
A) $45,600
B) $50,400
C) $53,200
D) $56,000
E) $58,800

Accepted Answer

The answer of Magellen Industries is analyzing a new project....

Question 17

A ﬁrm is considering a project with a cash break-even point of 8,100 units. The selling price is $12.50 a unit and the variable cost per unit is $6.25. What is the amount of the total ﬁxed costs?
A) $49,375
B) $49,875
C) $50,625
D) $51,125
E) $51,938

Accepted Answer

The answer of A ﬁrm is considering a project with...

Question 18

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 sales revenue under the worst case scenario?
A) $60,600.75
B) $62,474.00
C) $73,500.00
D) $84,525.00
E) $87,060.75

Accepted Answer

The worst-case scenario for sales revenue would involve the lowest sales price and the lowest number of units sold. The lowest sales price is $21 - 3% = $20.37. The lowest number of units sold is 3,500 - 15% = 2,975 units. Therefore, the sales revenue under the worst-case scenario is 2,975 units * $20.37 = $60,600.75.

Question 19

A project has projected sales of 25,600 units with a selling price of $4.95 each. Annual ﬁxed costs are $31,000 with variable costs of $2.18 per unit. The project has a three-year life and requires an
Initial investment of $62,900 for equipment. The equipment will be depreciated straight-line to zero
Over three years. The sales price has a plus-minus range of 10% while the cost estimates are
Expected to vary within a 5% range. The quantity has a plus-minus range of 8%. The tax rate is 34%.
Under the best-case scenario, what is the operating cash ﬂow?
A) $22,268
B) $28,292
C) $42,867
D) $43,235
E) $49,259

Accepted Answer

First, we need to calculate the variable cost per unit with the given range provided:
Variable cost per unit= $2.18*(1-0.05)=$2.07
We also need to find the range of sales quantity:
Quantity range= 25,600*(1+0.08)= 27,648 units

Best case scenario:
Sales= 25,600*(1+0.1)= 28,160 units
Revenue= $4.95*28,160= $139,248
Variable costs= $2.07*28,160= $58,275.20
Contribution margin= $80,972.80

Total cost= $31,000+(2.18*25,600)= $85,568
Depreciation= $62,900/3= $20,966.67
EBIT= $80,972.80- $85,568- $20,966.67= -$25,562.87
Tax= 34%*($25,562.87)= $8,686.77

Operating cash flow= EBIT+Depreciation-Taxes= -$25,562.87+$20,966.67-$8,686.77= -$13,282.97

Therefore, the best choice for the operating cash flow is E) $49,259.

Question 20

Matrix, Inc. currently has sales of $39,600, variable costs of $28,730, and ﬁxed costs of $8,280. If the company installs a new piece of equipment, the variable costs are expected to increase to
$34,970 and the number of units produced will increase from 2,800 to 4,100. What is the minimum
Price the company can accept for each of the additional units if they want to maintain their current
Level of net income?
A) $1.52
B) $4.80
C) $5.73
D) $6.82
E) $10.55

Accepted Answer

The answer of Matrix, Inc. currently has sales of $39,600,...

Quiz 11: Project Analysis and Evaluation

A project has a contribution margin of $6, projected ﬁxed costs of $14,000, projected variable cost per unit of $14, and a projected ﬁnancial break-even point of 6,000 units. What is the operating Cash ﬂow at this level of output?

A proposed project has ﬁxed costs of $3,600, depreciation expense of $1,500, and a sales quantity of 1,300 units. What is the contribution margin if the projected level of sales is the accounting break- Even point?

A project has an accounting break-even point of 41,400 units. The ﬁxed costs are $198,634 and the depreciation expense is $21,200. The projected variable cost per unit is $41.50. What is the Projected sales price?

What are the earnings before interest and taxes?

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 are the ﬁrm's total variable costs at the Accounting break-even point?

The accounting break-even production quantity for a project is 6,208 units. The ﬁxed costs are $27,400 and the contribution margin is $5.20. What is the projected depreciation expense?

A ﬁrm is considering a project with a cash break-even point of 13,500 units. The selling price is $13 a unit and the variable cost per unit is $7. What is the projected amount of ﬁxed costs?

A project has earnings before interest and taxes of $5,750, ﬁxed costs of $50,000, a selling price of $13 a unit, and a sales quantity of 11,500 units. Depreciation is $7,500. What is the variable cost per Unit?

A project has earnings before interest and taxes of $6,500, ﬁxed costs of $40,000, a selling price of $12 a unit, and a sales quantity of 10,000 units. Depreciation is $8,500. What is the variable cost per Unit?

What is the contribution margin for a sensitivity analysis using a variable cost per unit of $9?

A project has expected sales of 21,000 units at a price of $14.99, variable costs of $9.03, and ﬁxed costs of $58,590. What is the contribution margin per unit?

A ﬁrm is considering a project with a cash break-even point of 8,100 units. The selling price is $12.50 a unit and the variable cost per unit is $6.25. What is the amount of the total ﬁxed costs?