Chapter 9 LS Corporate Finance

Which of the following represents the accounting profit break-even point? Depreciation/Contribution Margin (Fixed Costs + Depreciation)/Contribution Margin Total Taxes/Contribution Margin Fixed Costs/Contribution Margin

(Fixed Costs + Depreciation)/Contribution Margin

Which of the following are examples of variable costs for a car manufacturer? Cost of steel Freight costs CEO salary Labor costs

Cost of steel Freight costs Labor costs

Which of the following is a fixed cost for a garment manufacturing business? Labor costs Rent for the building Energy costs from running equipment The cost of fabric

Rent for the building

Which of the following is an example of a sunk cost? Purchase of inventory Renovation of existing building to accommodate the new project Research and development expenses incurred in the past Acquisition of new equipment to manufacture the product

Research and development expenses incurred in the past

Which of the following are examples of fixed costs for a car repair shop performing oil changes and other repairs? Oil for oil changes Salary for the shop manager Insurance for the shop Monthly rent for the shop

Salary for the shop manager Insurance for the shop Monthly rent for the shop

Compute net accounting profit based on the following information: Revenues = $4,000 Variable Costs = $1,600 Fixed Costs = $700 Depreciation = $300 Tax Rate = 20 percent $1,360 $1,372 $1,120 $1,400

$1,120 ($4,000 - $1,600 - $700 - $300)*(1-.20)

You are in the business of manufacturing watches. The parts for each of these watches costs an average of $25. Your period costs for the month are $3,000. What will be the monthly total variable costs if you manufacture 100 watches? $5,500 $25 -$500 $2,500

$2500 $25 per watch x 100 watches

What is the total number of inputs that change while doing sensitivity analysis? All inputs change 1 0

1

The marketing department has projected that the firm's market share will be 15 percent of industry sales. Industry sales should total 30,000 units. If the price per unit is $150, the firm's expected sales revenue will be ___________ $3,825,000 $675,000 $4,500,000 $525,000

675,000

Which of the following are true about depreciation expense? It does not affect the cash flows It affects the cash flows It affects the accounting profit break-even point It is a non-cash expense

It affects the cash flows It affects the accounting profit break-even point It is a non-cash expense

In the context of capital budgeting, what does sensitivity analysis do? It examines the sensitivity of profits to changes in market share It examines the increase in the cost of a project when the cost of capital increases It examines how sensitive a particular NPV calculation is to changes in underlying assumptions It examines the sensitivity of management to the possibility that a project will be rejected

It examines how sensitive a particular NPV calculation is to changes in underlying assumptions

Which of the following costs relating to a doctor's office are variable costs? Medical supplies Secretary's salary Lab reports for patients Rent for the medical office

Medical supplies Lab reports for patients

Which of the following pieces of information are required in order to compute NPV? Projected future cash flows The time horizon of the project Projected future debt costs The discount rate

Projected future cash flows The time horizon of the project The discount rate

Which of the following are variable costs for a grocery store? The cost of vegetables The store manager's salary The cost of labor to stock shelves Rent for the store

The cost of vegetables The cost of labor to stock shelves

Which of the following is an opportunity cost in the context of a vacant building that a firm currently owns? The loss of reputation the firm incurs because it owns a vacant building The rental income lost from owning a vacant building The cost of maintaining the empty building

The rental income lost from owning a vacant building

Which of the following are true about variable costs? The variable cost per unit may remain constant as the number of units produced increases Total variable costs increase as the total number of units produced increases The variable cost per unit increases as the number of units produced increases Total variable costs remain constant as the total number of units produced increases

The variable cost per unit may remain constant as the number of units produced increases Total variable costs increase as the total number of units produced increases

Under which of the following scenarios will an option to abandon be a valuable option? When there is a possibility of a negative future outcome When a project's assets can be quickly liquidated at fair values When future market conditions are unpredictable When a project is guaranteed to be a success

When there is a possibility of a negative future outcome When a project's assets can be quickly liquidated at fair values When future market conditions are unpredictable

Which costs are included in the numerator of the accounting profit break-even point equation? Sunk costs Fixed costs Variable costs Depreciation

Fixed costs Depreciation

Which of the following are reasons why NPV is considered a superior capital budgeting technique? NPV considers all the cash flows NPV results in only one rate of return NPV considers the time value of money NPV properly discounts earnings

NPV considers all the cash flows NPV considers the time value of money

Synergy will cause the cash flows from the sale of existing products to __________. decrease and then increase remain unchanged increase decrease

increase

An accounting break-even point of 2,000 means the firm _________ will start generating losses if it sells more than 2,000 units has total costs (including depreciation) of $2,000 will start generating profits if it sells more than 2,000 units will start generating profits if its costs reach $2,000

will start generating profits if it sells more than 2,000 units

What is the relationship between variable costs and output? Total variable costs are directly related to the level of output Total variable costs are inversely related to the level of output Total variable costs will remain constant, regardless of the level of output

Total variable costs are directly related to the level of output