Intermediate Financial Management Exam One

Sales price per unit

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

The net present value of the project is negative and equal to the initial investment

A project has a projected IRR of negative 100%. Which one of the following statements must also be true concerning this project? A) The discounted payback period equals the life of the project B) The net present value of the project is equal to zero C) The operating cash flow is positive and equal to the depreciation D) The payback period is exactly is exactly equal to the life of the project E) The net present value of the project is negative and equal to the initial investment

Financial

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? A) Cash B) Financial C) Leveraged D) Accounting E) Marginal

Net income

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

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

Fixed costs: A) Are subtracted from sales to compute the contribution margin B) Change as a small quantity of output produced changes C) Are defined as the change in total costs when one more unit of output is produced D) Are constant over the short-run regardless of the quantity of output produced E) Can be ignored in scenario analysis since they are constant over the life of a project

Identifying the potential range of reasonable outcomes

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

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

Sensitivity analysis determines the: A) Range of possible outcomes given that most variables are reliable only within a stated range B) Ideal ratio of variable costs to be fixed costs for profit maximization C) Net present value range that can be realized from a proposed project D) Degree to which a project relies on its fixed costs E) Degree to which the net present value reacts to changes in a single variable

Scenario analysis

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? A) Break-even analysis B) Sensitivity analysis C) Scenario analysis D) Simulation testing E) Rationing analysis

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? A) Average total cost B) Marginal cost C) Average variable cost D) Marginal revenue E) Average total revenue

No. The offered price is less than the marginal cost

The Metal Shop produces 2.1 million metal fasteners a year for industrial use. At this level of production, its total fixed costs are $320,000 and its total costs are $522,000. The firm can increase its production by 5%, without increasing either its total fixed costs or firm sell the additional units at the offered price? Why or why not? A) Yes. The offered price is greater than the marginal cost. B) No. The offered price is greater than the marginal cost. C) Yes. The offered price is less than the marginal cost. D) No. The offered price is less than the marginal cost. E) Yes. The offered price is equal to the marginal cost.

14,192 units

The Motor Works is considering an expansion project with estimated fixed costs of $87,000, depreciation of $22,900, variable costs per unit of $22.37, and an estimated sales price of $28.50 per unit. How many units must the firm sell to breakeven on a cash basis? A) 14,192 units B) 14,206 units C) 17,928 units D) 8,510 units E) 10,842 units

Likely to occur

The base case values used in scenario analysis are the values considered to be the most: A) Likely to create a positive net present value B) Pessimistic C) Likely to occur D) Optimistic E) Desired by management

Marginal cost

The change in variable costs that occur when production is increased by one unit is referred to as the: A) Total cost B) Average cost C) Scenario cost D) Marginal cost E) Net cost

Cash break-even point

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 $320,000. Annual sales are estimated at $589,000 and the tax rate is 34%. The net present value is a negative $320,000. Based on this analysis, the project is expected to operate at the: A) Minimum possible level of production B) Cash break-even point C) Accounting break-even point D) Maximum possible level E) Financial break-even point

Vary directly with sales

Variable costs con be defined as the costs that: A) Are inversely related to the number of units sold B) Vary directly with sales C) Remain constant for all time periods D) Remain constant over the short run E) Are classified as noncash expenses

Worst case scenario analysis

When you assign highest anticipated sales prices and lowest costs to a project, you are analyzing the project under what condition? A) Base case scenario analysis B) Worst case sensitivity analysis C) Worst case scenario analysis D) Best case sensitivity analysis E) Best case scenario analysis

IRR and net income

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

Financial break-even

Which one of the following represents the level of output where a project produces a rate of return just equal to its requirement? A) Financial break-even B) Internal break-even C) Capital break-even D) Accounting break-even E) Cash break-even

The lowest variable cost per unit that can reasonably be expected

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