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Exam 11: Project Analysis and Evaluation

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Question 1

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

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

F) A) and B)
G) B) and D)

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Question 2

Multiple Choice

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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.

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

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Question 3

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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?

Stellar Plastics is analyzing a proposed project.The company expects to sell 12,000 units,plus or minus 5 percent.The expected variable cost per unit is $3.20 and the expected fixed costs are $30,000.The fixed and variable cost estimates are considered accurate within a plus or minus 5 percent range.The depreciation expense is $24,000.The tax rate is 34 percent.The sales price is estimated at $7.50 a unit,plus or minus 4 percent.What is the operating cash flow for a sensitivity analysis using total fixed costs of $31,000?

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?

The Coffee Express has computed its fixed costs to be $0.34 for every cup of coffee it sells given annual sales of 212,000 cups.The sales price is $1.49 per cup while the variable cost per cup is $0.63.How many cups of coffee must it sell to break-even on a cash basis?

Hybrid cars are touted as a "green" alternative; however,the financial aspects of hybrid ownership are not as clear.Consider a hybrid model that has a list price of $5,500 (including tax consequences) more than a comparable car with a traditional gasoline engine.Additionally,the annual ownership costs (other than fuel) for the hybrid were expected to be $420 more than the traditional model.The EPA mileage estimate is 23 mpg for the traditional model and 25 mpg for the hybrid model.Assume the appropriate interest rate is 10 percent,all cash flows occur at the end of the year,you drive 15,900 miles per year,and keep either car for 6 years.What price per gallon would make the decision to buy they hybrid worthwhile?

An increase in which of the following will increase the accounting break-even quantity? Assume straight-line depreciation is used. I.annual salary for the firm's president II.contribution margin per unit III.cost of equipment required by a project IV.variable cost per unit

A project has a unit price of $5,000,a variable cost per unit of $3,750,fixed costs of $17,000,000,and depreciation expense of $6,970,000.What is the accounting break-even quantity?

The degree of operating leverage is equal to:

Sensitivity analysis is based on:

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:

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?

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

The accounting manager of Gateway Inns has noted that every time the inn's average occupancy rate increases by 2 percent,the operating cash flow increases by 5.3 percent.What is the degree of operating leverage if the contribution margin per unit is $47?

Ted is analyzing a project using simulation.His focus is limited to the short-term.To ease the simulation process,he is combining expenses into various categories.Which one of the following should he include in the fixed cost category?

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

What are the key features of the accounting,cash,and financial break-even points?

A proposed project has a contribution margin per unit of $13.10,fixed costs of $74,000,depreciation of $12,500,variable costs per unit of $22,and a financial break-even point of 11,360 units.What is the operating cash flow at this level of output?

McGilla Golf has decided to sell a new line of golf clubs.The clubs will sell for $500 per set and have a variable cost of $200 per set.The company spent $113,000 for a marketing study that determined the company will sell 58,000 sets per year for 7 years.The marketing study also determined that the company will lose sales of 15,000 sets of its high-priced clubs.The high-priced clubs sell at $700 and have variable costs of $300.The company will also increase sales of its cheap clubs by 9,000 sets.The cheap clubs sell for $200 and have variable costs of $100 per set.The fixed costs each year will be $7,559,000.The company has also spent $1,133,000 on research and development for the new clubs.The plant and equipment required will cost $21,000,000 and will be depreciated on a straight-line basis over the life of the project.The new clubs will also require an increase in net working capital of $1,053,000 that will be returned at the end of the project.The tax rate is 40 percent,and the cost of capital is 8 percent.What is the IRR?