MGMT 310 CH 11

Which one of the following is the relationship between the percentage change in operating cash flow and the percentage change in quantity sold? Degree of sensitivity Degree of operating leverage Accounting break-even Cash break-even Contribution margin

Degree of operating leverage

Which of the following values will be equal to zero when a firm is operating at the accounting break-even level of output? IRR and OCF Net income and contribution margin IRR and net income OCF and NPV Net income and NPV

IRR and net income

Assume both the discount and tax rates are positive values. At the financial break-even point, the: payback period equals the project's life. NPV is negative. OCF is zero. contribution margin per unit equals the fixed costs per unit. IRR equals the required return.

IRR equals the required return.

Scenario analysis is best suited to accomplishing which one of the following when analyzing a project? Determining how fixed costs affect NPV Estimating the residual value of fixed assets Identifying the potential range of reasonable outcomes Determining the minimal level of sales required to break-even on an accounting basis Determining the minimal level of sales required to break-even on a financial basis

Identifying the potential range of reasonable outcomes

By definition, which one of the following must equal zero at the accounting break-even point? Net present value Depreciation Contribution margin Net income Operating cash flow

Net income

By definition, which one of the following must equal zero at the cash break-even point? Net present value Internal rate of return Contribution margin Net income Operating cash flow

Operating cash flow

A decrease in which one of the following will increase the accounting break-even quantity? Assume straight-line depreciation is used and ignore taxes. Sales price per unit Management salaries Variable labor costs per unit Initial fixed asset purchases Fixed costs

Sales price per unit

Which one of the following will be used in the computation of the best-case analysis of a proposed project? Minimal number of units that are expected to be produced and sold The lowest expected salvage value that can be obtained for a project's fixed assets The lowest anticipated sales price per unit The lowest variable cost per unit that can reasonably be expected The highest level of fixed costs that is actually anticipated

The lowest variable cost per unit that can reasonably be expected

Fixed costs: change as a small quantity of output produced changes. are constant over the short-run regardless of the quantity of output produced. are defined as the change in total costs when one more unit of output is produced. are subtracted from sales to compute the contribution margin. can be ignored in scenario analysis since they are constant over the life of a project.

are constant over the short-run regardless of the quantity of output produced.

Bell Weather Goods has several proposed independent projects that have positive NPVs. However, the firm cannot initiate any of the projects due to a lack of financing. This situation is referred to as: financial rejection. project rejection. soft rationing. marginal rationing. capital rationing.

capital rationing.

When the operating cash flow of a project is equal to zero, the project is operating at the: maximum possible level of production. minimum possible level of production. financial break-even point. accounting break-even point. cash break-even point.

cash break-even point.

Forecasting risk is defined as the possibility that: some proposed projects will be rejected. some proposed projects will be temporarily delayed. incorrect decisions will be made due to erroneous cash flow projections. some projects will be mutually exclusive. tax rates could change over the life of a project.

incorrect decisions will be made due to erroneous cash flow projections.

The change in revenue that occurs when one more unit of output is sold is referred to as: marginal revenue. average revenue. total revenue. erosion. scenario revenue.

marginal revenue.

An analysis of the change in a project's NPV when a single variable is changed is called _____ analysis. forecasting scenario sensitivity simulation break-even

sensitivity

When you assign the lowest anticipated sales price and the highest anticipated costs to a project, you are analyzing the project under the condition known as: best-case sensitivity analysis. worst-case sensitivity analysis. best-case scenario analysis. worst-case scenario analysis. base-case scenario analysis.

worst-case scenario analysis.