Chapter 13 Financial management

Miller River Light is evaluating a project that will require an initial investment of​ $350,000. Miller River uses a​ 12% discount rate for capital projects of this type. What level of operating cash flows over a period of 5 years will cause the project to reach break−even ​NPV? Assume cash flows come in the form of an end−of−the−year annuity. A. $97,093.41 B. $92,329.12 C. $70,000.00 D. $86,690.54

A. $97,093.41

Betty Gilmore plans to sell berry pies at a local​ farmer's market. The permit and space rental will cost her​ $2,000 for the June through August season. The pies will sell for​ $7.00. Ingredients and overhead average​ $4.00 per pie. She also has to pay five percent of her gross sales to the​ markets's organizers. How many pies will she need to sell to cover her fixed​ costs? A. 755 pies with a very small profit on the last pie. B. 301 pies C. 667 pies with a very small profit on the last pie. D. She can never break even.

A. 755 pies with a very small profit on the last pie

Variable cost for​ Light.com's fluorescent tubes is​ $12.50, the tubes are sold over the internet to businesses and organizations for​ $20.00 each. Fixed costs are​ $7,500,000. $500,000 in depreciation expense is included in fixed costs. What is the cash break−even quantity for the fluorescent​ tubes? A. 933,333 B. 1,000,000 C. ​1,066,667 D. 375,000

A. 933,333

Accounting break−even analysis solves for the level of sales that will result in A. net income​ = $0.00. B. Free cash flow​ = $0.00. C. IRR=Cost of Capital. D. NPV​ = $0.00.

A. net income = $0.00

There is a​ 30% probability that an office building will be sold after 5 years for​ $30 million, a​ 50% probability that it will be sold for​ $20 million and a​ 20% probability that it will be sold for​ $10 million. What is the expected value of the office building in 5​ years? A. $30 million B. ​$21 million C. $10 million D. $20 million

B. $21 million

Variable cost for​ Light.com's fluorescent tubes is​ $12.50, the tubes are sold over the internet to businesses and organizations for​ $20.00 each. Fixed costs are​ $7,500,000. What is the break−even quantity for the fluorescent​ tubes? A. 375,000 B. 1,000,000 C. 600,000 D. 7,500,000

B. 1,000,000

The Oviedo Thespians are planning to present performances of their Florida Revue on 2 consecutive nights in January. It will cost them​ $5,000 per night for theater​ rental, event insurance and professional musicians. The theater will also take​ 10% of gross ticket sales. How many tickets must they sell at​ $10.00 per ticket to raise​ $1,000 for their​ organization? A. 1000 tickets B. 1,223 tickets C. 1,112 tickets D. There is not enough information

B. 1,223 tickets

Betty Gilmore plans to sell berry pies at a local​ farmer's market. The permit and space rental will cost her​ $2,000 for the June through August season. The pies will sell for​ $7.00. Ingredients and overhead average​ $4.00 per pie. She also has to pay five percent of her gross sales to the​ markets's organizers. How many pies will she need to sell to cover her fixed costs and realize a​ $3,000 profit? A. 752 B. 1,887 pies. C. 1,250 pies D. 1,667 pies

B. 1,887 pies

Charlestown​ Marina's forecasts indicate that if slip rentals equal​ $500,000, net operating income will be​ $25,000 and if rentals equal​ $525,000, net operating income will be​ $37,500. What is​ Charletown's degree of operating​ leverage? A. .10 B. 10 C. 2 D. .05

B. 10

Boulangerie Bouffard expects to sell 1 million croissants next year for​ $1.25 each. Variable cost of a croissant is​ $0.75. Fixed costs are​ $150,000, depreciation​ $200,000 and the tax rate is​ 25%. If the bakery can increase the price of a croissant to​ $1.50 and all other variables remain the​ same, free cash flow will increase by A. $150,000. B. $37,500. C. $187,500. D. $250,000.

C. $187,500

Excom Fiberoptics is bidding on contracts to sell micro test tubes for biotechnology research. in sets of​ 1,000 tubes. Fixed costs including depreciation associated with the project are​ $2,000,000, variable cost per set is​ $16. Excom expects to sell​ 250,000 sets. What is the minimum price it can charge and reach the accounting break−even ​point? A. $20 B. $8 C. $24 D. $12

C. $24

Enchanted Hearth expects to sell​ 1,200 wood pellet stoves in 2011 at an average price of​ $2,400 each. It believes that unit sales will grow between −​5% and​ +5% per year and prices will rise or fall by as much as​ 5% per year. Forecast sales revenue for 2013 if the number of units sold increases by​ 5% per year and prices remain flat. A. $3,168,000 B. $2,880,000 C. $3,175,200 D. $3,333,960

C. $3,175,200

The Oviedo Thespians are planning to present performances of their Florida Revue on 2 consecutive nights in January. It will cost them​ $5,000 per night for theater​ rental, event insurance and professional musicians. The theater will also take​ 10% of gross ticket sales. How many tickets must they sell at​ $10.00 per ticket to break​ even? A. ​1,223 tickets B. 1000 tickets C. 1,112 tickets D. There is not enough information

C. 1,112 tickets

Accounting break−even analysis uses A. free cash flows for a single period. B. free cash flows over the entire life of a project. C. sales, variable costs and fixed costs for a single period. D. sales, variable costs and fixed costs over the entire life of a project.

C. sales, variable costs and fixed costs for a single period.

​Jake's Tree farm is evaluating a proposal to plant​ 5,000 ornamental trees at an initial cost of​ $10,000. The trees will be sold in 5 years. What is the minimum after tax cash flow from selling the trees that will allow the tree planting project to reach break even​ NPV? Use a discount rate of​ 12%. A. $12,000.00 B. $5,674.26 C. $17,958.56 D. $17,623.42

D. $17,623.42

Quineboag Textiles In. has calculated​ it's degree of operating leverage at 3.00. If Quineboag can increase sales from​ $5,000,000 to​ $5,250,000, operating income should increase from​ $500,000 to A. $515,000 B. $650,000 C. $1,500,000 D. $575,000

D. $575,000

Brookfield Heavy Equipment is considering a project that will produce after tax cash of​ $40,000 per year for 5 years. The project will require an initial investment of​ $144,191. At what discount rate will the project reach break−even ​NPV? A. 11.11% B. 10% C. ​8% D. 12%

D. 12%

At the break−even NPV point A. The NPV of the project is equal to zero. B. the​ project's IRR is equal to the​ project's required rate of return. C. the present value of operating cash flows equals the initial amount invested. D. all of the above

D. all of the above

T/F Dudster​ company's DOL is 2. If sales increase by​ 10%, NOI will increase by​ 5%.

False