FIN 3250 Test 4

A project has a unit sales price of $13.39, a variable cost per unit of $5.48, fixed costs of $3,000, and depreciation expense of $830. Ignore taxes. What is the accounting break-even quantity?

484 Units

The annual payment stream with the same present value as a project's effective cost is called the project's _____ cost.

Equivalent Annual

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

Fixed Costs

Which one of these combinations must increase the contribution margin?

Increasing the sales price and decreasing the variable cost per unit

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

Humberto 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 he using?

Scenario Analysis

A firm's managers realize they cannot monitor all aspects of their projects but do want to maintain a constant focus on the most critical aspect of each project in an attempt to maximize their firm's value. Given this specific desire, which type of analysis should they require for each project and why?

Sensitivity analysis; to identify the key variable that affects a project's profitability

A cost that has already been incurred and cannot be recouped is a(n):

Sunk Cost

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

The lowest variable cost per unit that can reasonably be expected

If you use discounted cash flow analysis to set a bid price, then the bid price is:

The minimum price you should charge if you want to break even

Fixed costs:

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

Sensitivity analysis determines the:

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

As the degree of sensitivity of a project to a single variable rises, the:

greater is the importance of accurately predicting the value of that variable.

Forecasting risk is defined as the possibility that:

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

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

likely to occur

Variable costs can be defined as the costs that:

vary directly with sales.

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 operating leverage

Which one of the following characteristics best describes a project that has a low degree of operating leverage?

High variable costs relative to the fixed costs

You are considering the purchase of new equipment. Your analysis includes the evaluation of two machines which 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 which has the:

Lowest Equivalent Annual Cost

The depreciation method currently allowed under U.S. tax law governing the accelerated write-off of property under various lifetime classifications is called:

MACRS

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

Net Income

Which one of the following best illustrates a side effect as it relates to project analysis?

selling less hamburgers because you also started selling hot dogs

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:

worst-case scenario analysis.