Intermediate Financial Management-Blank

Which one of the following is an example of a sunk cost?

$1,200 paid to repair a machine last year.

Initial investment in inventory to support the project.

All of the following are related to a proposed project. What should be included in the cash flow at Time 0?

Fixed Costs:

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

When you assign highest anticipated sales price and lowest costs to a project, you are analyzing the project under what condition?

Best case scenario analysis

Valerie just completed analyzing a project. Her analysis indicates that the project will have a 6-year life and require an initial cash outlay of $320,000. Annual sales are estimated at $589,000 and the tax rate is 34 percent. The net present value is a negative $320,000. Based on this analysis, the project is expected to operate at the:

Cash break-even point

A group of individuals got together and purchased all of the outstanding shares of common stock of DL Smith, Inc. What is the return that these individuals require on this investment called?

Cost of equity.

Sensitivity analysis determines the:

Degree to which the net present value reacts to changes in a single variable.

T/F. As the discount rate increases, present value of investment cash flows increases.

False. Decreases

T/F. As uncertainty about expected cash flows increases, the value of an asset increases.

False. Decreases

T/F. An investment project with an infinite life (i.e., it is expected to last forever) will have an infinite value.

False. Have a value that can be estimated as a perpetuity.

T/F. If a firm offers to sell additional units of a product at the lowest price possible without negatively affecting the firm's profits, the price that should be charged is the average cost.

False. Marginal Cost

T/F. A firm should select the capital structure that limits the value of the firm by having equal debt with the value of equity.

False. Maximizes the value of the firm.

Assume a project has a discounted payback equal to the project's life. The project's sales quantity must be at what break-even point?

Financial

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

Financial break-even

Kelley's Baskets makes handmade baskets for distribution to upscale retail outlets. The firm is currently considering making handmade wreaths as well. Which one of the following is the best example of an incremental operating cash flow related to the wreath project?

Hiring additional employees to handle the increased workload should the firm accept the wreath project.

Which of the following values will be equal to zero when a firm is operating at the accounting break-even level of output?

IRR & Net Income

Scenario analysis is best suited to accomplishing which one of the following when analyzing a project?

Identifying the potential range of reasonable outcomes.

The weighted average cost of capital for a wholesaler:

Is the return investors require on the total assets of the firm.

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

Likely to occur.

.The change in variable costs that occurs when production is increased by one unit is referred to as the:

Marginal Cost.

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?

Marginal Cost.

By definition, which one of the following must equal zero at the accounting break-even point?

Net Income

Fixed costs

Operating leverage is the degree of dependence a firm places on its:

The cost of preferred stock is computed the same as the:

Rate of return on a perpetuity.

Three years ago, Knox Glass purchased a machine for a three-year project. The machine is being depreciated straight-line to zero over a five-year period. Today, the project ended and the machine was sold. What correctly defines the aftertax salvage value of that machine? (T=tax)

Sale Price+(Book Value-Sale Price) x T

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?

Scenario Analysis

Analysis of the change in a project NPV when changing a single variable is called ___ analysis.

Sensitivity

A project has a projected IRR of negative 100 percent. Which one of the following statements must also be true concerning this project?

The NPV of the project is negative and equal to the initial investment.

Tax due on the salvage value of that asset.

The current book value of a fixed asset that was purchased two years ago is used in the computation of what?

Incremental Cash Flows

The difference between a firm's future cash flows if it accepts a project and the firm's future cash flows if it does not accept the project is referred to as the project's.

Which one of the following will be used in the computation of the best-case analysis of a proposed project?

The lowest variable cost per unit that can reasonably be expected.

Dexter Smith & Co. is replacing a machine simply because it has worn out. The new machine will not affect either sales or operating costs and will not have any salvage value at the end of its 5-year life. The firm has a 34 percent tax rate, uses straight-line depreciation over an asset's life, and has a positive net income. Given this, which one of the following statements is correct?

The new machine will generate positive operating cash flows.

T/F. An increase in depreciation will increase cash flow from assets but decrease net income.

True

T/F. As the life of an asset or project is lengthened, the value of that asset increases.

True

T/F. As expected growth rate increases in the dividend growth model, the price of a stock increases.

True.

A decrease in _____ increases accounting break-even quantity? Use straight-line depreciation. Ignore tax.

Unit Price.

A decrease in which will increase the accounting break-even quantity? Assume straight-line depreciation is used and ignore taxes.

Variable labor costs per unit.

Variable costs can be defined as the costs that:

Vary directly with sales

Degree of Operating Leverage (DOL)

Which is the relation between percentage changes in operating cash flow and quantity sold?

Scenario analysis is defined as the:

determination of changes in NPV estimates when what-if questions are posed

The aftertax cost of debt:

is highly dependent upon the firm's tax rate