FIN 362 EXAM 1 question i find hard

The bid price is the: price you must charge to break even at a zero discount rate. the aftertax contribution margin. the highest price you should charge if you want to win the bid. the only price you can bid if the project is to be profitable. the minimum price that will provide your target rate of return.

the minimum price that will provide your target rate of return.

The Creamery is analyzing a project with expected sales of 5,700 units, ±5 percent. The expected variable cost per unit is $168 and the expected fixed costs are $424,000. Cost estimates are considered accurate within a ±3 percent range. The depreciation expense is $156,000. The sales price is estimated at $339 per unit, ±5 percent. The tax rate is 21 percent. The company is conducting a sensitivity analysis with fixed costs of $425,000. What is the OCF given this analysis? $416,511 $385,350 $467,023 $394,874 $421,300

$467,023

Currently, GH Co. sells 42,600 handbags annually at an average price of $149 each. It is considering adding a lower-priced line of handbags that sell for $79 each. The firm estimates it can sell 21,000 of the lower-priced handbags but expects to sell 7,200 less of the higher-priced handbags by doing so. What is the amount of the annual sales that should be used when evaluating the addition of the lower-priced handbags? $586,200 $659,000 $6,933,600 $5,839,000 $780,200

$586,200

Mason Farms purchased a building for $689,000 and made repairs costing $136,000. The annual taxes on the property are $8,200. The building has a current market value of $730,000 and a current book value of $394,000. The building is mortgage-free. If the company decides to use this building for a new project, what value, if any, should be included in the initial cash flow of the project for this building? $0 $394,000 $730,000 $159,000 $721,800

$730,000

value of one right

(market price- rights offering price)/(plus x rights + 1)

You are in charge of a project that has a degree of operating leverage of 1.06. What will happen to the operating cash flows if the number of units you sell increase by 3.7 percent? 3.49 percent decrease 4.76 percent decrease 3.70 percent decrease 3.69 percent increase 3.92 percent increase

3.92 percent increase

A project has an accounting break-even quantity of 28,700 units, a cash break-even quantity of 17,120 units, a life of 10 years, fixed costs of $178,000, variable costs of $18.40 per unit, and a required return of 14 percent. Depreciation is straight-line to zero over the project life. Ignoring taxes, what is the financial break-even quantity? 39,723 units 39,201 units 39,458 units 39,624 units 39,320 units

39,320 units

% change in OCF =

DOL(% change in Q)

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

Given the following, which feature identifies the most desirable level of output for a project? Operating cash flow equal to the depreciation expense Payback period equal to the project's life Discounted payback period equal to the project's life Zero IRR Zero operating cash flow

Discounted payback period equal to the project's life

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

Changes in the net working capital requirements: can affect the cash flows of a project every year of the project's life. only affect the initial cash flows of a project. only affect the initial and final cash flows of a project. are generally excluded from project analysis due to their irrelevance to the total project. are excluded from project analysis as long as they are recovered when the project ends.

can affect the cash flows of a project every year of the project's life.

Valerie just completed analyzing a project. Her analysis indicates that the project will have a six-year life and require an initial cash outlay of $120,000. Annual sales are estimated at $189,000 and the tax rate is 21 percent. The net present value is negative $120,000. Based on this analysis, the project is expected to operate 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.

Sensitivity analysis determines the: range of possible outcomes given that most variables are reliable only within a stated range. degree to which the net present value reacts to changes in a single variable. net present value range that can be realized from a proposed project. degree to which a project relies on its initial costs. ideal ratio of variable costs to fixed costs for profit maximization.

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

You are considering the purchase of a new machine. Your analysis includes the evaluation of two machines that have differing initial and ongoing costs and differing lives. Whichever machine is purchased will be replaced at the end of its useful life. You should select the machine that has the: longest life. highest annual operating cost. lowest annual operating cost. highest equivalent annual cost. lowest equivalent annual cost.

lowest equivalent annual cost.

Direct business loans typically ranging from one to five years are called: private placements. debt SEOs. notes payable. debt IPOs. term loans.

term loans.

ALUM Inc. uses high-tech equipment to produce specialized products. Each one of its machines costs $1,243,000 to purchase plus an additional $78,000 a year to operate. The machines have a five-year life after which they are worthless. What is the equivalent annual cost of one these machines if the required return is 16.5 percent? −$462,061.04 −$427,109.10 −$335,803.37 −$395,666.67 −$556,947.08

−$462,061.04 EAC is calculated by taking NPV as PV then plugging in the rest of the data and solving for PMT

Kelly's Corner Bakery purchased a lot in Oil City six years ago at a cost of $98,700. Today, that lot has a market value of $128,900. At the time of the purchase, the company spent $6,500 to level the lot and another $12,000 to install storm drains. The company now wants to build a new facility on the site at an estimated cost of $494,200. What amount should be used as the initial cash flow for this project? −$611,400 −$623,100 −$641,600 −$592,900 −$582,400

−$623,100