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Workshop One - 1.4 Quiz
Question 1.1. The basic form of what-if analysis is called scenario analysis, or the determination of what happens to NPV estimates when we ask what-if questions.
(Points : 2)
False
Question 2.2. Financial
break-even is the sales level that results in a zero NPV.
(Points : 2)
False
Question 3.3. Marginal, or incremental, revenue is defined as the change in revenue that occurs when there is a small change in output.
(Points : 2)
False
Question 4.4. The “bottom-up” approach to calculating operating cash flow is described by the following formula: OCF = Sales – Costs – Taxes.
(Points : 2)
False
Question 5.5. “Simulation analysis” is a combination of scenario and sensitivity analysis.
(Points : 2)
False
Question 6.6. Marginal, or incremental, cost is defined as the change in costs that occurs when there are large changes in output.
(Points : 2)
False
Question 7.7. It is important when analyzing an investment opportunity that we consider aftertax cash flows.
(Points : 2)
False
Question 8.8. The incremental cash flows for project evaluation consist of any and all changes in the firm’s future cash flows that are a direct consequence of taking the project.
(Points : 2)
False
Question 9.9. A sunk cost is a cost to be incurred in the future.
(Points : 2)
False
Question 10.10. A negative impact on the cash flows of an existing product from the introduction of a new product is called erosion. In this case, the cash flows from the new line should be adjusted upward to reflect lost profits on other lines.
(Points : 2)
False
Question 11.11. In
calculating break-even, it makes no difference to distinguish between variable costs and fixed costs.
(Points : 2)
False
Question 12.12. Pro forma financial statements refer to prior years’ financial statements.
(Points : 2)
False
Question 13.13. Operating leverage is the degree to which a firm or project relies on variable costs.
(Points : 2)
False
Question 14.14. Equivalent annual cost (EAC) is the future value of a project’s costs calculated on an annual basis.
(Points : 2)
False
Question 15.15. The degree of operating leverage (DOL) is the percentage change in operating cash flow relative to the percentage change in quantity sold.
(Points : 2)
TrueFalse
b12.Suppose that a project has a DOL = 0.6. If the quantity being produced increases from92 to 99, what is the expected percentage change in operating cash flow?
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d13.Find the accounting break-even point given the following information: Price = $40 perunit; variable cost = $30 per unit; annual fixed costs = $20,000; depreciation = $5,000.a.800 unitsb.1,500 unitsc.2,000 unitsd.2,500 unitse.4,000 units
e14.A firm has a DOL = 3. If sales decrease by 15%, then OCF will.
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c15.A firm has fixed costs of $8,000 per year, depreciation of $2,000 per year, a price perunit of $50, and an accounting break-even point of 400 units. What are the firm’s totalvariable costs at the accounting break-even point?
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e16.Suppose the projected unit sales has an upper bound of 8,000 and a lower bound of6,000, and the estimated variable cost per unit of $10 has +/– 25% forecast error.Calculate the best-case scenario project IRR.
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