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Exam 11: Project Analysis and Evaluation

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Question 51

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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

F) A) and D)
G) A) and C)

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Question 52

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Precise Machinery is analyzing a proposed project.The company expects to sell 2,100 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 $775 per unit,give or take 2 percent.The tax rate is 34 percent.The company is conducting a sensitivity analysis with fixed costs of $590,000.What is the OCF given this analysis?

A) $337,975
B) $285,350
C) $368,250
D) $374,874
E) $414,350

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

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Question 53

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Miller Mfg.is analyzing a proposed project.The company expects to sell 8,000 units,plus or minus 4 percent.The expected variable cost per unit is $11 and the expected fixed costs are $290,000.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 operating cash flow under the best case scenario?

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?

What is operating leverage and why is it important in the analysis of capital expenditure projects?

You are considering a project that you believe is quite risky.To reduce any potentially harmful results from accepting this project,you could:

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

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

At the accounting break-even point,the:

Which of the following are inversely related to variable costs per unit? I.contribution margin per unit II.number of units sold III.operating cash flow per unit IV.net profit per unit

The Metal Shop produces 1.8 million metal fasteners a year for industrial use.At this level of production,its total fixed costs are $320,000 and its total costs are $522,000.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 $0.10.Should the firm sell the additional units at the offered price? Why or why not?

Which of the following values will be equal to zero when a firm is producing the accounting break-even level of output? I.operating cash flow II.internal rate of return III.net income IV.payback period

A company is considering a project with a cash break-even point of 22,600 units.The selling price is $28 a unit,the variable cost per unit is $13,and depreciation is $14,000.What is the projected amount of fixed costs?

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 Steve using?

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 project has the following estimated data: price = $74 per unit; variable costs = $39.22 per unit; fixed costs = $6,500; required return = 8 percent; initial investment = $8,000; life = 4 years.Ignore the effect of taxes.What is the degree of operating leverage at the financial break-even level of output?

In an effort to capture the large jet market,Hiro Airplanes invested $12.68 billion developing its B490,which is capable of carrying 800 passengers.The plane has a list price of $275 million.In discussing the plane,Hiro Airplanes stated that the company would break-even when 246 B490s were sold.Assume the break-even sales figure given is the cash flow break-even.Suppose the sales of the B490 last for only 9 years.How many airplanes must Hiro Airplanes sell per year to provide its shareholders a 19 percent rate of return on this investment?

The contribution margin per unit is equal to the:

Precise Machinery is analyzing a proposed project.The company expects to sell 2,100 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,give or take 2 percent.What is the contribution margin per unit under the best case scenario?

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